Suppose Jay has been experiencing back pain, and has four options for treatment (Table 14.6).

a. Plot these four treatments on cost–pain reduction axes. Create a cost-effectiveness frontier by connecting potentially cost-effective treatments.

b. Calculate the ICER between cortisone injections and a chair cushion, and between acupuncture and cortisone injections.

c. Assume that indifference curves in this space are linear. Interpret this assumption.

d. Find the range of valuations for a pain reduction unit that Jay would need in order to pick cortisone injections as the cost-effective treatment. Explain your answer.

e. Under this assumption of linearity, is it possible to draw indifference curves such that cortisone injections will be cost-effective?

f. Relaxing this assumption, draw an indifference curve such that cortisone injections are preferred to all other treatments. Describe the preferences that your indifference curves imply.

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Table 14.6. Potential therapies for back pain. Treatment regimen Total cost Do nothing $0 Chair cushion $100 $700 $1,000 Cortisone injections Acupuncture Pain reduction 0 units 20 units 25 units 50 units