Under normal circumstances, the more competition in an industry, the l

I am confused between Option B,D & E.

In correct answer D, the same thing can also happen in Less competitive areas, increasing surgery rates. Then How can this option explains paradox?

Can some one please clear my confusion?

GMATNinja can you help?

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Official Answer:
Argument Construction

Situation Surgery patients in hospitals in the most competitive markets often pay more per hospital stay than surgery patients in hospitals in less competitive markets. Normally one expects greater competition to result in lower prices.

Reasoning Among the five facts cited, which one is the least useful in explaining the paradox of higher patient cost in more competitive hospital markets? Here are some of the many things that could contribute to the higher costs: a higher cost of living in a large city with several hospitals; higher capital costs incurred on equipment designed to provide more sophisticated service; the cost in a high-competition market of frequent updates to buildings and facilities; and longer hospital stays after surgery in the most competitive markets.

A This helps explain the apparent paradox of higher prices for hospital surgery stays in the more competitive hospital markets. A higher cost of living in large cities where the most competitive markets often are would likely force hospitals to pay their staff higher salaries, resulting in higher prices for patients. This would help explain the higher prices.
B This helps explain the apparent paradox. It implies that hospitals in the most competitive markets would buy expensive equipment, for example the latest medical-imaging equipment such as NMR machines. This would raise hospital costs, and these increased costs must be reflected in prices charged to patients.
C This helps explain the apparent paradox. It suggests that hospitals in the least competitive hospital markets are likely to spend less on frequent building updates and maintenance than those in more competitive markets. If surgery patients prefer frequently updated and well-maintained facilities, greater competition will motivate hospitals to satisfy this preference, and consequently to raise prices.
D Correct. This does little to explain the apparent paradox. Standard economics predicts that increased competition for a type of service leads to lower prices for services of that type. The fact that many simple surgeries would normally not entail a hospital stay does not help explain the apparent paradox that patients’ costs for in-hospital surgeries that inherently involve hospital stays are higher in the most competitive hospital markets.
E This helps explain the apparent paradox. If surgery patients’ hospital stays in the most competitive hospital markets are longer, on average, then the total cost of their hospital stays would tend to be higher than in the less competitive markets.

The correct answer is D.

This OE is confusing and quite frankly I don't think makes any sense.

RE: A - What does the cost of living have to do with the salaries? There's no incentive for hospitals (or any employer for that matter) to meet any standards of living beyond minimum wage. So from the hospital's point of view they can simply tell off the staff ...go live somewhere else (further away) because that's none of our (the hospital's) concern.

RE: Where does it say anything about "The fact that many simple surgeries would normally not entail a hospital stay". I don't see any connection to hospital stays.

KarishmaB

The conclusion is about patients paying more "per hospital stay"

Now (E) says that the patients spend more time in hospitals. So their TOTAL cost will increase. But that doesn't mean that they pay more per day to the hospital. So how can (E) be eliminated?

We need an answer choice that helps us understand why patients are willing to pay more per day to a hospital in a competitive market.

Normally, more competition leads to less cost for customers.
Surgery patients in hospitals in the most competitive market are likely to pay more per hospital stay than those in less competitive hospital markets.

Hoozan - They pay more per hospital stay (one hospital stay can be of any number of days). One stay means one visit for say one surgery. It could involve staying over for multiple days. So the argument tells us that the total cost of one stay is higher in more competitive markets than the total cost of one stay in less competitive markets.

What cannot explain this paradox?

A. The cost of living in the most competitive hospital markets is considerably higher than the national average

Since cost of living in areas of competitive hospital markets, cost of stay in hospitals will also be higher. Explains the paradox.

B. Hospitals tend to respond to competition by buying expensive diagnostic equipment, the cost of which is passed on to patients.

Hospitals in competitive markets have higher costs and they pass them on to patients. So patients pay higher. Explains the paradox.

C. If given a choice, surgery patients avoid those hospitals whose cost containment strategies include such practices as refurbishing patients' rooms less frequently.

If patients prefer frequent refurbishing, hospitals in competitive markets will frequently refurbish and hence pass on the cost to patients. This explains the paradox too.

D. Now that many simple surgeries can be performed safely in any qualified physician's office, most surgeries performed in hospitals are both serious and expensive.

This doesn't explain the paradox. This would be true for both competitive and less competitive markets. Simple procedures will happen in physician's office and hospital surgeries would be the serious and more expensive cases. Then why do people pay more in competitive markets?

E. In the most competitive markets, physicians tend to keep postoperative patients in the hospital longer than do physicians in less competitive markets.

In competitive markets, patients are kept in the hospital longer so their stay becomes more expensive. Explain the paradox.

Answer (D)

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