Suppose that a medical school provides three outputs--patient care, education, a

Question

Suppose that a medical school provides three outputs--patient care, education, and research--and that the total cost of the school is $100 million per year. If the school produced only education, its cost would be $60 million. If the school produced only patient care, its costs would be $30 million. If it produced only research, the costs would be $20 million. Joint costs fore each pair would be $10 million.

a) What are the pure costs of education, patient care, and research?

b) What are the joint costs?

Explanation / Answer

a) Total cost = 100million

Pure cost of education = Total cost - cost of only patient care - cost of only research = 100-30-20 = 50

Pure cost of patient care = Total cost - cost of only education - cost of only research = 100-60-20 = 20

Pure cost of research = Total cost - cost of only patient care - cost of only education = 100-30-60 = 10

b) Joint cost = Total cost - all pure costs = 100 - 50-20-10 = 20 million

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