Answered: of fixed costs such as building…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Please paraphrase this answer with your own words (not AI) making sure it correctly answers this question: Explain why economies of scale exist for hospitals. Your answer should include a discussion on what economies of scale are. When there is an increase in the size and scope of production or operation, there's a reduction in cost per unit called economies of scales, and increasing the number of patients treated or services provided by hospitals leads to a decrease in their cost per patient or service. Several reasons account for why economies of scale exist in hospitals, and the distribution of fixed costs such as building maintenance and equipment is facilitated by an increased number of patients or services. If a stadium has to host only a limited number of people due to maintenance reasons then the ticket price per person would increase. Due to their size and purchasing power, bigger hospitals can negotiate with suppliers and vendors to get better prices, thus it's better for hospitals to purchase products in large quantities and get discounted rates from suppliers. In conclusion, large hospitals are usually capable of enticing top-notch medical staff such as physicians or registered nurses who could prefer working at an establishment that is both reputable and grander, and the provision of superior quality healthcare may entice a larger patient population thereby increasing revenue. Hospitals are able to offer care at a lower cost thanks to the utilization of economies of scale resulting in reduced costs for patients as well as insurance providers.

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