Study Appendix 2A. Hospitals measure their volume in terms of patient-days. We calculate patient-days by multiplying the number of patients by the number of days that the patients are hospitalized. Suppose a large hospital has fixed costs of $52.8 million per year and variable costs of $750 per patient-day. Daily revenues vary among classes of patients. For simplicity, assume that there are two classes: (1) self-pay patients (S) who pay an average of $1,250 per day and (2) non–self-pay patients (G) who are the responsibility of insurance companies and government agencies and who pay an average of $950 per day. Twenty-five percent of the patients are self-pay.

1. Compute the break-even point in patient-days, assuming that the hospital maintains its planned mix of patients.

2. Suppose that the hospital achieves 172,000 patient-days but that 40% of the patient-days were self-pay (instead of 25%). Compute the net income. Compute the break-even point.