# Question: Magnetic resonance imaging MRI is a noninvasive medical diagnostic

Magnetic resonance imaging ( MRI) is a noninvasive medical diagnostic device that uses magnets and radio waves to produce a picture of an area under investigation inside the body. A patient is positioned in the MRI and a series of images of the area ( say, the knee or abdomen) is generated. Radiologists then read the resulting image to diagnose cancers and internal injuries. The MRI at Memorial Hospital has the following projected operating data for next year.
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Memorial Hospital serves two types of patients: elderly, whose hospital bills are covered by governments (state and federal reimbursement), and other patients who are covered by private insurance (such as Blue Cross and Blue Shield). About one- third of Memorial’s patients are elderly. Elderly patients using MRI services normally require more time per MRI image. The typical elderly patient requires one hour of MRI time to produce the 10 MRI images needed for the radiologist. Other patients only require about 45 minutes per patient to generate the 10 MRI images.
Governments reimburse MRI imaging based on the reported cost by the hospital. Reimbursable costs include both the fixed and variable costs of providing MRIs. Private insurers reimburse MRI imaging based on a standard fee schedule set by the insurance company. These fee schedules are independent of the hospitals’ cost of providing MRI services.

Required:
a. Calculate Memorial Hospital’s projected cost per MRI image.
b. Calculate Memorial Hospital’s projected cost per hour of MRI time.
c. Suppose a typical elderly patient at Memorial Hospital requires 10 MRI images and takes one hour of MRI time. Calculate the cost of providing this service if Memorial Hospital calculates MRI costs based on cost per image.
d. Suppose a typical elderly patient at Memorial Hospital requires 10 MRI images and takes one hour of MRI time. Calculate the cost of providing this service if Memorial Hospital calculates MRI costs based on cost per hour of MRI time. e. Should Memorial Hospital calculate the cost of MRI services based on the cost per image or the cost per MRI hour? Explainwhy.
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