1. A patient with arthritis of the knee is planning to have a knee replacement. He has applied for a loan for this surgery; the loan has an annual interest rate of 6 percent. The artificial knee can function for 10 years before it needs to be replaced. Fees for knee replacement surgery are expected to grow at 5 percent annually. a. Why is an artificial knee a form of health capital? b. Assume the artificial knee depreciates at a constant rate every year until the time of replacement, which is 10 years hence. What is the cost of this capital? c. Suppose that instead of a loan, the patient plans to pay the surgery from his or her own savings. Assume that the bank's interest rate on savings deposits equals its rate on loans. Does this change your answer to (b)? Why or why not? d. Draw the COC (cost

1. A patient with arthritis of the knee is planning to have a knee replacement. He has applied for a loan for this surgery; the loan has an annual interest rate of 6 percent. The artificial knee can function for 10 years before it needs to be replaced. Fees for knee replacement surgery are expected to grow at 5 percent annually. a. Why is an artificial knee a form of health capital? b. Assume the artificial knee depreciates at a constant rate every year until the time of replacement, which is 10 years hence. What is the cost of this capital? c. Suppose that instead of a loan, the patient plans to pay the surgery from his or her own savings. Assume that the bank's interest rate on savings deposits equals its rate on loans. Does this change your answer to (b)? Why or why not? d. Draw the COC (cost

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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