Question

Suppose you were to specify a short-run total variable cost function for a nursing home. Explain the variables you would include in the function. What is the expected relation between a change in each of these variables and short-run total variable costs?

Answer 1

For a nursing home, the short-run variable cost function could include the following variables: health care worker supplies, patient care supplies, medications, energy use and daily wage labor.

Variable cost is the one which changes along with the quantity production. So, each of these variables will have a positive effect on the short-run total variable costs. As the quantity of health care provided by a hospital increases, the variable costs will also increase proportionally.