The Ville de Genve, Switzerland, makes a SFr 400 000 lump-sum budget appropriation to an agency to conduct a counselling programme for drug addicts for

The Ville de Genève, Switzerland, makes a SFr 400 000 lump-sum budget appropriation to an agency to conduct a counselling programme for drug addicts for a year. All of the appropriation is to be spent. The variable costs for drug prescriptions average SFr 400 per patient per year. Fixed costs are SFr 150 000.

Required

1. Calculate the number of patients that could be served in a year.

2. Suppose the total budget for the following year is reduced by 10%. Fixed costs are to remain the same. The same level of service to each patient will be maintained. Calculate the number of patients that could be served in a year.

3. As in requirement 2, assume a budget reduction of 10%. Fixed costs are to remain the same. The drug counsellor has discretion over how much in drug prescriptions to give to each patient. She does not want to reduce the number of patients served. On average, what is the cost of drugs that can be given to each patient? Calculate the percentage decline in the annual average cost of drugs per patient.