Suppose that you are interested in comparing the costs of producing inpatient se

Question

Suppose that you are interested in comparing the costs of producing inpatient services at Saving Grace Hospital with those at ACME Hospital. Further suppose that the two hospitals annually admit about 24,000 and 32,000 patients, respectively, at average short-run total costs per admission of roughly $11,000 and $12,000.

A. Why may these average STC figures not represent the economic cost of providing inpatient services at these two hospitals? Explain fully.

B. Suppose that these cost figures accurately reflect the economic costs of providing inpatient services at these two hospitals and that the two hospitals face the same average total cost curve. Draw a graphical representation of the average total cost curve (only) and graphically show and verbally explain why ACME Hospital produces at a higher cost than Saving Grace Hospital.

C. Using cost theory as presented in the text, identify and fully discuss four other factors that might explain why ACME Hospital has higher average costs of production than Saving Grace Hospital. (5 points)

Explanation / Answer

Solution -

Grace hospital

24,000 patients, Cost 11,000 each

Acme hospital

32,000 patients, cost 12,000 each

Short-term expenditures are spent on expanding into a company, Proksion Run is expensive in a short period of time.

The cost of long-term expenses decreases after the increase in the operation, if the patient has less ability to enter the hospital, it will cost more, after the expansion of the capacity, the company will reduce the cost over a longer period.

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