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Marginal cost and snowplowing

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Public Goods
Thelma and Louise are neighbors. During the winter, it is impossible for a snowplow to clear the street in front of Thelmaâ??s house without clearing the front of Louiseâ??s. Thelmaâ??s marginal benefit from snowplowing services is 12-Z, where Z is the number of times the street is plowed. Louiseâ??s marginal benefit is 8-2Z. The marginal cost of getting the street plowed is $16.

Sketch the two marginal benefit schedules and the aggregate marginal benefit schedule. Draw in the marginal cost schedule, and find the efficient level of provision for snowplowing services. If Thelma and Louise can come to an agreement that allows for the efficient level of provision of the snowplowing services, what are three possible ways in which they can share the costs? If Thelma and Louise cannot come to an agreement, how many times will the street be plowed?

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To find the amount that a group would pay for a public good, we sum their demand curves vertically. This is done because the good must be consumed in equal amounts, unlike a private good. Vertical summation of 12 -Z and 8-2Z gives us the MSB curve shown on the attached file. At $16, the MSC, we find that this curve is ...

Solution Summary

Efficient level of snowplowing determined by marginal costs and benefits

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Role of Cost in Decision Making in Healthcare Industry

Please answer all questions thoroughly and no plagarism. Please review all answers.

Course material: Neumann, B. R., Clement, J. P., and Cooper, J. C. Financial Management: Concepts and Applications for Health Care Organizations. Dubuque, IA: Kendall/Hunt Publishing Company, 1999, 239.

1. Where would you most likely find each of the following expenses listed: Administration, Physical Therapy, Nursing, or Maintenance?

a. The Administrator's salary

b. Pharmacy supplies

c. Crutches

d. Fuel

e. Clerical office help

f. Office supplies

g. Physical therapy salaries

h. The salary for the Director of Nursing

i. RN wages

j. Snowplowing expenses

k. Staff education on how to use crutches with a patient

l. Health insurance for the clerical staff in the physical therapy department.

2. Identify each of the following as either direct costs or indirect costs?

a. Real estate taxes

b. Clinic telephone expense

c. Oil for the heat for the whole facility

d. Emergency room medical supplies

e. Liability insurance

f. Nursing wages for the operating room

g. Food for the residents in the medical surgical unit

h. Diapers for the babies in the nursery

i. Computer system for the facility

j. Marketing expense for the new wing

3. What is the contribution margin in the following example?

a. Revenues: $1,200,000

b. Variable Costs: $ 215,000

c. Fixed Costs: $1,000,000

What is the contribution margin percentage?

4. Explain, in your own words, the relative advantages and disadvantages of each of the three primary cost allocation methods (Direct Allocation, Step-Down Allocation, and Reciprocal Allocation).

5. Using the following example, allocate service center costs to each of the three revenue centers using the step-down method:
Full-time Costs Square Feet Meals Employees
Service Centers
Maintenance $150,000 ---- 2,500 10
Dietary 400,000 10,000 ---- 15 Administrative 600,000 20,000 2,500 10
Revenue Centers
Laboratory 600,000 30,000 2,500 20
Radiology 800,000 40,000 2,500 30
Nursing 2,000,000 100,000 30,000 50
$4,550,000 200,000 40,000 135

6. List three examples of Relative Value Units (RVUs) common to health care.

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