SCENARIO:
Suppose that you are interested in comparing the costs of producing inpatient services at Saving Grace Hospital with those at ACME Hospital. Further suppose that the two hospitals annually admit about 24,000 and 32,000 patients, respectively, at average short-run total costs per admission of roughly $11,000 and $12,000.
A. Why may these average STC figures not represent the economic cost of providing
inpatient services at these two hospitals? Explain fully.
B. Using cost theory as presented in the text, identify and fully discuss four other factors that might explain why ACME Hospital has higher average costs of production than Saving Grace Hospital.