The Elder Clinic, a not-for-profit organization, provides limited medical services to low-income elderly patients. The managers summary

The Elder Clinic, a not-for-profit organization, provides limited medical services to low-income elderly patients. The manager’s summary report for the past four months of operations is reproduced here.

The clinic receives an operating subsidy from the city, but unfortunately, the operating loss incurred through June ($79,392) is larger than anticipated. Part of the problem is the salary increase that went into effect in June, which had been overlooked when the budget was submitted to the city last year. To compound the problem, the warm summer months traditionally bring with them an increase in heat-related health problems. Thus, the clinic is likely to experience an increase in patient visits during July.
The accountant made the following assumptions in developing the cost function:
● Salaries are fixed, and June values are used.
● Medical supplies vary with patient visits.
● Rent and utilities are fixed, and last period’s costs are used.
● Other expenses are mixed and using regression, fixed cost is $702 and variable cost is $2.53 per patient visit. Clinic management is considering an increase in patient fees to reduce losses.

REQUIRED
A. Develop a cost function for this data. You may have done this for Chapter 2, and in that case use that cost function. Solve for the average patient fee necessary to break even assuming there are 940 patient-visits using the cost function you developed. Compare this new fee with the average patient fee charged during March through June.
B. Suppose the clinic raises its patient fees to break even. What problems do you see from the elderly patients’ perspective if the fee is raised?
C. In this setting, would an increase in fees be likely to affect patient volume? What problems do you see from the clinic’s perspective if the fee is raised?
D. Other than raising the fee, what ideas might the clinic consider to balance thebudget?

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March April May June Total Patient visits Patient fees 849 S 4,230 821 $ 4,180 778 $ 3,875 842 3,290 $16,545 $ 4,260 Medical staff salaries Medical supplies used Administrative salaries Rent Utilities Other expenses Total expenses 13,254 3,182 3,197 1,000 532 2,854 24,019 13,256 3,077 3,198 1,000 378 2,776 23,685 13,254 2,934 3,197 1,000 321 2,671 23,377 14,115 3,175 3,412 1,100 53,879 12,368 13,004 4,100 1,457 11,129 95,937 226 2,828 24,856 Operating surplus (loss) $(19,789) $ (19,505) (19,502) $ (20,596) (79,392)