In order to justify our scale of operation we must be able to attract enough patients to be inside the feasible range of production. The feasible range is governed by the way productivity changes as more staff must share the fixed resources. Unfortunately, it is rare for detailed information about productivity to be available to decision-makers. However because of the one-to-one correspondence between productivity and cost, we can see the boundaries of the feasible range reflected in our variable costs, and these costs are always available to decision makers on a detailed and up-to-date basis.

Step 1: Find Average Variable Cost by dividing the Total Variable Cost by the total number of patients served by all four physicians, given under Revenues.

Step 2: The fee per patient is also given under Revenues. Does the fee per patient cover the Average Variable Cost? If yes, the UCC is inside its feasible range and is not too large a facility for the market size it intends to serve.

Question 2: Breaking Even for the Urgent Care Center

In the short run it is enough to establish that your scale of operation is justified, but in the long run we have to cover our capital costs as well as our labor and other variable costs.

Step 1: Find the Total Cost by summing the Total Variable Cost and Total Fixed Cost.

Step 2: Find the Average Total Cost by dividing Total Cost by the total number of patients served by four physicians.

Step 3: Does the fee per patient cover the Average Total Cost? If yes, the UCC is breaking even in the long run.

Question 3: Finding Economic Profit/Loss

Remember that that 'normal profit' of a facility is included in Total Cost by economists. It is the factor payment to the person who organizes the business and bears the risk, and therefore it must be covered by Revenues if the facility is to remain in business. If the facility is doing better than breakeven, there is an "economic profit"; if the facility is not breaking even, there is an "economic loss."

Step 1: Find the Total Revenues by multiplying the fee per patient by the number of patients treated by all physicians.

Step 2: Subtract the Total Cost from the Total Revenues. Is this number positive? If yes, there is an economic profit. If no, there is an economic loss.

Step 3: Is there an economic profit or an economic loss, and what is the amount?

Answer rating: 100% (QA)

Question 1 Feasible Range Step 1 Average Variable Cost Average Variable Cost ... View the full answer