Question

The empirical study, Cowing and Holtmann (1983), supports the short-run cost-efficiency for larger hospitals. Do you agree or disagree with it? Please explain and cite a reference link (URL) to an article which supports your answer.

Answer 1

Since the methods of analysis have become more advanced, it has become obvious that average cost for short-term hospices lessens with rising scale of output for a considerable span of output. The long-run AC curve seems to be U-shaped as per the empirical research, with costs increasing gradually as the production scale goes past the optimal point & with the point of least AC possibly   appearing between the two hundred-bed & three hundred-bed levels. Less is known about the form of the cost curves for separate facilities & about the cost relations between departments. Empirical research hasn’t excluded the likelihood that the AC curve is in fact L-shaped (& not U-shaped)