Q. Suppose that you are interested in comparing the costs of producing inpatient services at Saving Grace Hospital with those at ACME Hospital. Further suppose that the two hospitals annually admit about 24,000 and 32,000 patients, respectively, at average short-run total costs per admission of roughly $11,000 and $12,000.

A. Why may these two dollar figures not represent the economic cost of providing inpatient services at these two hospitals? Explain fully.

B. Suppose that these cost fi gures accurately refl ect the economic costs of providing inpatient services at these two hospitals and that the two hospitals face the same average total cost curve. Draw a graphical representation of the average total cost curve (only) and graphically show and verbally explain why ACME Hospital produces at a higher cost than Saving Grace Hospital.

C. Using cost theory as presented in class and the text, identify and fully explain four other factors that might explain why ACME Hospital has higher average costs of production than Saving Grace Hospital.

D. Fully explain how the comparative analysis becomes muddled if one considers that one (or both) of the two hospitals is not organized on a for-profit basis.