Economics

Economics

Question 2.2

Number of beds = 500

X = 1200 - 2p

P = price of a bed day

X = number of patients days of care demanded

Fixed cost of adding a bed = $150

Total house keeping cost = C = (B/3.5)2

Net marginal revenue (NMR) = Marginal Revenue - Marginal Cost

Marginal Revenue = $250

Marginal Cost = Fixed cost per bed + Variable cost

= $150 + (House keeping cost for 501 beds - House keeping cost for 500 beds)

= $150 + ( (501/3.5)2 - (500/3.5)2 )

= $150 + (20489.87 - 20408.16)

= $150 + 81.71

= $231.71

Net marginal revenue (NMR) = Marginal Revenue - Marginal Cost

= $250 - $231.71

= $18.29

Net marginal revenue curve

Marginal Cost = Fixed cost per bed + Variable cost

= $150 + (House keeping cost for 501 beds - House keeping cost for 500 beds)

= $150 + [(501/3.5)2 - (500/3.5)2]

= $150 + (20489.87 - 20408.16)

= $150 + 81.71

= $231.71

Net marginal revenue (NMR) = Marginal Revenue - Marginal Cost

= $250 - $231.71

= $18.29

Marginal Cost = Fixed cost per bed + Variable cost

= $150 + (House keeping cost for 501 beds - House keeping cost for 500 beds)

= $150 + [(502/3.5)2 - (501/3.5)2]

= $150 + (20571.75 - 20489.87)

= $150 + 81.88

= $231.88

Net marginal revenue (NMR) = Marginal Revenue - Marginal Cost

= $250 - $231.88

= $18.12

Marginal Cost = Fixed cost per bed + Variable cost

= $150 + (House keeping cost for 501 beds - House keeping cost for 500 beds)

= $150 + [(503/3.5)2 - (502/3.5)2]

= $150 + (20653.79 - 20571.75)

= $150 + 82.04

= $232.04

Net marginal revenue (NMR) = Marginal Revenue - Marginal Cost

= $250 - $232.04

= $17.96

Marginal Cost = Fixed cost per bed + Variable cost

= $150 + (Housekeeping cost for 501 beds - House keeping cost for 500 beds)

= $150 + ( (504/3.5)2 - (503/3.5)2 )

= $150 + (20736 - 20653.79)

= $150 + 82.21

= $232.21

Net marginal revenue (NMR) = Marginal Revenue - Marginal Cost

= $250 - $232.21

= $17.79

Marginal Cost = Fixed cost per bed + Variable cost

= $150 + (Housekeeping cost for 501 beds - House keeping cost for 500 beds)

= $150 + ( (505/3.5)2 - (504/3.5)2 )

= $150 + (20818.36 - 20736

= $150 + 82.36

= $232.36

Net marginal revenue (NMR) = Marginal Revenue - Marginal Cost

= $250 - $232.36

= $17.64

X (Number of beds)

Y (Dollars)

501

18.29

502

18.12

503

17.96

504

17.79

505

17.64

The graph of the Net Marginal Revenue of the hospital is a straight line sloping downwards. This shows that as the hospital adds more beds, the marginal revenue starts decreasing. Therefore, adding additional ...