Question

A specialty hospital opens up with 50 beds to perform only abdominal surgeries. Observed economies of scale for most hospitals are documented at 100 beds. Will this specialty hospitals be able to realize economies of scale in the production of abdominal surgeries?

1) Yes. The surgery may have relatively low capital costs, so spreading over 50 beds would be sufficient to realize economies of scale because specialization of surgeons skills is more important factor in realizing economies of scale than number of beds.

2) Yes. The key to economies of scale may be spreading high fixed costs over a small number of beds.

3) Yes, specialty hospitals do not necessarily have to produce high number of surgeries to achieve economies of scale in their particular line of specialization.

4) No, economies of scale cannot be realized at such a low bed count.

5) There is not enough information to determine the answer with certainty.

Answer 1

1) Yes. The surgery may have relatively low capital costs, so spreading over 50 beds would be sufficient to realize economies of scale because specialization of surgeons skills is more important factor in realizing economies of scale than number of beds.

(This specialization hospital is performing only abdominal surgeries so it has lower capital costs than other hospitals as they have to perform a greater number of surgeries than a specialization hospital. So, lower capital costs would make 50 beds enough in realizing economies of scale as specialization is a more important factor than number of beds.)