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2. This question deals with the costs a hospital faces. a. What is the difference between...

2. This question deals with the costs a hospital faces.

a. What is the difference between short run costs and long run costs?

b. Give an example of a cost that is fixed in the short run and one that is variable in the short run for a hospital.

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Answer #1

a) Short run cost has some fixed inputs and some variable inputs. Fixed inputs are inputs which do not depend on output, here output is number of patients. Variable inputs depend on number of patients.

Long run cost has all the inputs as variable inputs. All the inputs can be increased or decreased as per the requirement.

b) Suppose there are 5 supervisors in the hospital for each unit. But the hospital is not running well. The board decides to shut down two units in the long run and as a result there are 3 units left which need 3 supervisors each. In this example supervisor is fixed input cost in the short run but becomes variable in the long run.

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