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Difficulty: MediumResolving Paradoxes and Discrepancies

In 2025, a biotechnology company introduced a synthetic enzyme replacement therapy for a rare metabolic disorder, reducing the manufacturing cost per dose by 60% compared to traditional plasma-derived methods. Although the company maintained its standard fixed profit margin per dose, the average total annual out-of-pocket expenditure for patients undergoing this therapy increased significantly over the following year.

Which of the following, if true, help to resolve the apparent discrepancy described above? Select all that apply.

  1. The synthetic enzyme breaks down more rapidly in the human body than the plasma-derived version, requiring patients to receive doses five times as frequently per year to maintain therapeutic effectiveness.Answer
  2. Major health insurance providers reclassified the synthetic therapy into a specialty tier that substantially lowered the percentage of treatment costs covered by insurance, requiring patients to pay a far higher proportion of the cost directly.Answer
  3. C
    The raw chemical inputs required to synthesize the enzyme are sourced from chemical manufacturers whose global market prices remained stable over the preceding decade.
  4. D
    Market research indicates that synthetic pharmaceutical products generally experience increased price competition and lower overall consumer costs after their patents expire.
  5. E
    The synthetic manufacturing process eliminates the complex cold-chain refrigeration logistics previously required to transport fragile biological plasma products.

Answer

Both the explanation involving increased annual dosage frequency and the explanation involving reduced health insurance coverage percentage successfully resolve the paradox.
The paradox centers on why annual out-of-pocket expenses rose despite a drop in the per-dose price. The option stating that patients require doses five times as frequently resolves the discrepancy because multiplying a reduced per-dose price by five results in a net increase in annual expenditure. The option noting a reduction in insurance coverage percentage also resolves the discrepancy because requiring patients to pay a larger share directly increases their out-of-pocket costs regardless of reductions in total retail price.

Step-by-Step Solution

1
Identify the core facts creating the paradox in the stem.
Fact 1: Manufacturing cost per dose decreased by 60% and profit margin per dose remained fixed, meaning the price per dose decreased. Fact 2: Annual out-of-pocket expenditure paid by patients increased.
A paradox requires identifying two seemingly contradictory facts that must both remain true.
2
Evaluate how a decrease in per-unit cost can coexist with an increase in total annual expenditure.
Total annual cost equals (cost per dose) multiplied by (number of doses per year), modified by (percentage paid out-of-pocket versus insurance). An increase in either dosage volume or the out-of-pocket share can overcome the decrease in cost per dose.
Resolving a mathematical discrepancy in economics requires isolating variables that decouple per-unit price from total expenditure.
3
Assess the options to determine which statements provide a viable mechanism.
Requiring five times as many doses per year (5×0.40=2.005 \times 0.40 = 2.00 times original total cost) and shifting a larger percentage of payment to patients via reduced insurance coverage both independently account for higher annual patient expenses.
Both factors allow both premises in the stimulus to remain completely true while explaining the outcome.

Key Concept

Resolving Paradoxes via Volume Discrepancies and Cost-Shifting Mechanisms
Estimated Time:2m 0s
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Topics

Resolving Paradoxes and Discrepancies

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