Question

To minimize costs for a given level of service, a hospital should

a.	Set marginal revenue equal to marginal cost
b.	Attain its highest indifference curve
c.	Provide a level of service such that its isocost and isoquant curves are tangent
d.	Provide a level of service such that consumer surplus is maximized
e.	None of the above

Answer 1

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To minimise cost for a given service hospital should provide a level of service at which isocost and isoquant curve is tangent.

Isocost curve traces the combination of 2 inputs that can be purchased at the same cost. Isoquant curve traces the combination of inputs which results in same level of output, so when the isocost is tangent to the isoquant then the firm produces a level of output which is cost minimizing

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Other options are wrong because:

MR = MC is the profit maximization condition

Indifference curve traces the combination of input which gives the same level of satisfaction, not related to cost.

If consumer surplus is maximised then the Producer surplus falls, since hospital is the Producers it is not benefical for it to maximise CS.