ABSTRACT
Before beginning the actual study of the supply of physician services, a brief review of the economics of "the firm" will prove helpful. "The firm" is an economic entity designed to make decisions. "The market" also makes decisions, often the same types of decisions as an individual firm makes. The physician directing a physician-firm serves two roles: one as a labor input in the firm and the other as entrepreneur. The "core business" of a physician-firm is the diagnosis and treatment of patient illnesses. As one looks at the cost-effectiveness data in the literature, it also becomes clear that the treatment recommendations along the extensive margin are mainly responsible for widespread medical practice variations. Many of the overall physician visits each day involve relatively simple medical conditions, and the practice of medicine that deals with these events is commonly described as primary care.
