Reference no: EM1315736
Not-for Profit Analysis optimal patient level under different plans.
Not-for Profit Analysis. The Indigent Care Center, Inc., is a private, not-for profit, medical treatment center located in Denver, Colorado. An important issue facing Dr. Kerry Weaver, ICC's administrative director, is the determination of an appropriate patient load (level of output). To efficiently employ scarce ICC resources, the board of directors has instructed Weaver to maximize ICC operating surplus, defined as revenues minus operating costs. They have also asked Weaver to determine the effects of two proposals for meeting new state health care regulations. Plan A involves an increase in costs of $100 per patient, whereas plan B involves a $20,000 increase in fixed expenses. In her calculations, Weaver has been asked to assume that a $3,000 fee will be received from the state for each patient treated, irrespective of whether plan A or plan B is adopted.
In the calculations for determining an optimal patient level, Weaver regards price as fixed; therefore, P = MR = $3,000. Prior to considering the effects of the new regulations, Weaver projects total and marginal cost relations of:
TC = $75,000 + $2,000Q + $2,5Q2
MC = δTC/δQ = $ 2,000 + $5Q
Where Q is the number of ICC patients.
A. Before considering the effects of the proposed regulations, calculate ICC'S optimal patient and operating surplus levels.
B. Calculate these levels under plan A.
C. Calculate these levels under plan B.
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