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 €54 million per year and variable costs of €600 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 €1,000 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 €800 per day. Twenty per cent 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 225,000 patient-days but that 25 per cent of the patient-days were self-pay (instead of 20 per cent). Compute the net income. Compute the break-even point.