ECO 605 Assignment 2.1: Maximizing Productivity

ECO 605 Assignment 2.1: Maximizing Productivity

ECO 605 Assignment 2.1: Maximizing Productivity

Introduction

In this assignment, you are presented with a chart representing the number of nurses, number of patient visits associated the number of nurses available, and the MPL of each additional nurse hired. You will calculate missing information and use the data to assess the clinic’s inputs, outputs, and point of diminishing return. You will use this assessment to provide recommendations to the clinic in terms of how many nurses to hire to ensure maximum productivity.

Many people are not aware of the financial aspects involved in running a business. One important aspect is determining how much it costs to produce certain products, which can be difficult without knowing what your exact output will look like or if there’s any chance you might increase production levels over time and reduce losses from decreased sales due to too low demand for their product line-up (Fathi et al., 2020). The key factor here remains fixed expenses versus variable ones depending on whether these ongoing payments change based on allotted resources being used up gradually instead of when extra spending needs arise unexpectedly because things went wrong–such situations often occur during start-ups where everything often becomes challenging. Fixed costs, total costs, and total variable costs are important parts of running a business (Lin & Chen, 2020). This assignment involves calculating different costs for a clinic and determining factors that are likely to decrease or increase the costs. There is going to be the calculation of the clinic’s marginal costs (MC). To better understand the behavior of the cost of the clinics, different average costs and marginal costs have been translated into graphical form.

Definition of Terms

Total fixed costs refer to the sum of all the consistent and non-variable expenses that an organization or a company ought to pay. Fixed costs are those that still exist even when production is at zero (De Loecker et al., 2020). These can be seen as overhead, and many of them have been known to Total Fixed cost is the total amount a business must pay regardless of their produce- this does not change based on how much product that a company makes.                                                                                 The total variable cost for a company’s production is equivalent to the amount it takes to produce one unit (Sabogal-De La Pava et al., 2020). This number can be determined by simply multiplying how much each individual product costs and then adding them all together, making sure not to include any fixed or indirect expenses such as rent space where these items/products are made.                                                                                                                                      The total cost is the sum of all expenses that a company incurs to produce one unit. These can include fixed parts and variable ones such as labor or rent on space where products are being made but do not include taxes since these vary depending upon what product is being made (Yang, 2020).

Formulas for AFC, AVC, ATC, and MC

Average Fixed Cost (AFC) =     (Ran et al., 2020)

Average Variable Cost (AVC) =

Average Total Cost (ATC) =

Marginal Cost (MC) =

1. Fill in the values of the following table:

Patient  Visits	Total Variable Costs	Total Costs (TFC+TVC)	Total Fixed Costs	Average Fixed Cost	Average Variable Cost	Average Total Cost	Marginal Cost
0	0	50	50	—-	——	——	—–
1	70	120	50	50	70	120	70
2	110	160	50	25	55	80	40
3	160	210	50	16.67	53.33	70	50
4	250	300	50	12.5	62.5	75	70
5	370	420	50	10	74	84	120

 

Factors That Would Cause Cost For the Clinic to Increase or Decrease

The increase and decrease of cost for the clinic could be attributed to different factors. Fluctuation in medical costs characterized by the increase or decrease in the cost of pharmaceutical products is one of the factors that could have caused the cost of clinic to increase or decrease. Another factor is the fluctuation in the operational costs characterized by the change in economic policies or health insurance policies (Dai et al., 2020). Subsidies from the government in the healthcare industry, including an increase in the number of patients, insured, maybe one of the causes of the increase or decrease in the clinic’s costs. The incentive for organizations to purchase more expensive healthcare plans is the ability of employers and employees alike, tax-deductible or otherwise (depending on whether it’s a company gift), to take advantage when expenses go down. This can lead not only to demand but also cost as well because low deductibles mean individuals may overuse care without thinking about the full implications until later. In the United States and other parts of the world, there is an increased number of patients due to the increase in the number of complications. These patients require specialized care that may drive up the costs. On the other hand, with the improved technology such as the IA, there is a high possibility of reduction in the healthcare costs within the clinic.

Graphical Representation of AFC, AVC, ATC, and MC curves

Graph1: Total Fixed Costs

Graph 1 shows a constant fixed cost that stays constant at 50 for all the outputs. From the definition, fixed costs always remain constant, and this has been clearly shown in the graph. Total fixed costs refer to the sum of all the consistent and non-variable expenses that an organization or a company ought to pay. Fixed costs are those that still exist even when production is at zero.

Graph II: Total Variable Costs

Graph II changes in total variable costs against the output. The trend shows variation in the costs with the output. An increase in the output leads to a subsequent increase in costs. An output of seven is associated with the high variable costs, while an output of 1 shows the least variable costs.

Graph III: Total Costs

Graph III shows an increase in total cost with the increase in output. Similar to variable costs, total costs are directly affected by the outputs. High outputs mean high total costs, while low output means low total costs.

Conclusion

Total fixed costs refer to the sum of all the consistent and non-variable expenses that an organization or a company ought to pay. Fixed costs are those that still exist even when production is at zero. The way that businesses account for their costs can be broken down into three categories – indirect, direct, and capital. Indirect costs are those which do not show up on the income statement as an expense. Instead, they are shown in other areas such as labor or rent but still contribute financially to making profit margins go higher with each passing year. Direct expenses refer to all expenditures associated with directly related production activities like wages paid out annually from payrolls, while Capital Costs represent spending incurred during the start-up phase when investments must first comprise inventory stock etc., before generating any revenue stream worth mentioning. The graphical representation makes it easier to understand AFC, AVC, ATC, and MC curves.

 

 

 

 

 

References

Lin, R., & Chen, Z. (2020). A DEA‐based method of allocating the fixed cost as a complement to the original input. International Transactions in Operational Research, 27(4), 2230-2250. https://onlinelibrary.wiley.com/doi/abs/10.1111/itor.12495

Ran, Z., Lun, R., Jinlin, L., & Tao, D. (2020). A Step-by-step Fixed Cost Allocation Method Based on Leader-follower DEA Model. Management Review, 32(3), 279. http://journal05.magtech.org.cn/jweb_glpl/EN/abstract/abstract1632.shtml

De Loecker, J., Eeckhout, J., & Unger, G. (2020). The rise of market power and the macroeconomic implications. The Quarterly Journal of Economics, 135(2), 561-644. https://doi.org/10.1093/qje/qjz041

Yang, J. (2020). Learning the Best Price and Ordering Policy under Fixed Costs and Ambiguous Demand. Available at SSRN 3554042. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3554042

Sabogal-De La Pava, M. L., Vidal-Holguín, C. J., Manotas-Duque, D. F., & Bravo-Bastidas, J. J. (2020). Supply Chain Design by Minimizing Equivalent Present Cost Considering Weighted Variable Costs. In Techniques, Tools and Methodologies Applied to Global Supply Chain Ecosystems (pp. 285-305). Springer, Cham. https://link.springer.com/chapter/10.1007/978-3-030-26488-8_13

Fathi, M., Markazi Moghaddam, N., Meshkani, Z., & Kazemi Karyani, A. (2020). Variable Costs of the Intensive Care Units and its Determinants in Iranian Hospitals. Evidence Based Health Policy, Management, and Economics, 4(1), 1-9.

Dai, Z., Gao, K., & Giri, B. C. (2020). A hybrid heuristic algorithm for a cyclic inventory-routing problem with perishable products in VMI supply chain. Expert Systems with Applications, 153, 113322. https://www.sciencedirect.com/science/article/abs/pii/S0957417420301470

Stennikov, V., & Penkovskii, A. (2020). The pricing methods on the monopoly district heating market. Energy Reports, 6, 187-193. https://doi.org/10.1016/j.egyr.2019.11.061

Assignment Guidelines

Use the Assignment 2.1 Document (Word)Links to an external site. to

1. Identify the fixed inputs for the clinic.
2. Complete a chart representing the number of nurses, number of patient visits associated the number of nurses available, and the MPL of each additional nurse hired.
3. Describe the relationship between the number of nurses hired and clinic visits (output).
4. Identify the number of nurses where the point of diminishing returns occurs.
5. Use the data to provide recommendations to the clinic in terms of the productivity of the nurses hired and how this can be increased.

Submission

Submit your file using the following naming convention: Last name_First name_Assignment_2.1.

Submit your assignment and review full grading criteria on the Assignment 2.1: Maximizing Productivity page.

This week, the focus is on the healthcare provider. Healthcare providers need resources to deliver a treatment or procedure. The purchase of these resources represents costs for healthcare providers. We will examine the relationship between the output of healthcare providers and the costs incurred to produce these services.

Review a list of all items due this week in your course’s syllabus.

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Lesson 1: The Production Function