Friday, September 11, 2020

Ventilators and the law of increasing opportunity cost

See As Coronavirus Hospitalizations Surge, Ventilator Manufacturing Ramps Up—but Not Quickly Enough: Hospitals need the breathing machines for critically ill virus patients but can’t get their hands on the numbers they require by Peter Loftus and Melanie Evans of The WSJ.

It reminds me of  The Law of Increasing Opportunity Cost. That is the idea that as you try to produce more of one good (A), you have to keep giving up more and more of another good (B), to get 1 more unit of A. This is because different resources are better suited to different productive activities.

One example I give in class is a of a college needing to teach more math classes. They might first have a physics professor teach a math class. He might need to take just one refresher course. Then you might have an econ prof teach math. He would need to do more retraining than the physics prof. Then you move on to an English prof who would need even more retraining.

So the cost of teaching math keeps rising. The physics prof was better suited to math than the econ prof who, in turn, was better suited than the English prof. There is a cost in converting the resources which keeps rising.

It looks like something similar happened with ventilators. Excerpts from the article:

"Manufacturers are ratcheting up production. Yet companies say it takes time to move employees around, add production lines and arrange a supply chain for the hundreds of components in each machine.

Altogether, medical-device manufacturers are making on average 2,000 to 3,000 ventilators a week, compared with 700 a week before the crisis, said the Advanced Medical Technology Association industry group. It expects production to increase to 5,000 to 7,000 ventilators a week in the coming weeks."

"Medtronic, which is transferring employees from a pacemaker plant to its nearby ventilator factory in Galway, Ireland, plans to double production by the end of this month and make an estimated 30,000 ventilators in the next six months, said Bob White, head of the company’s minimally invasive therapies unit."

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