5.1 Why is so important to distinguish between fixed and variable costs?

5.2 Explain how a decrease in input prices or an increase in efficiency would affect costs.

5.3 You spent $500,000 on staff training last year. Why should this cost be treated as a sunk cost? Why should this cost be ignored making a decision whether to switch coding software?

5.4 Your president bought two acres of land for $200,000 ten years ago. Although it is zoned for commercial use, it currently holds eight small, single family houses. A property management firm that wants to continue leasing the eight houses has offered you $400,000 for the property. A developer wants to build a 12-story apartment building on the site and has offered $600,000. What value should you assign to the property?

5.5 A community health center has assembled the following data cost and volume. Calculate its average and marginal costs for volumes ranging from 25 to 40. What patterns do you see?

Visits	Total Cost
20	$2200
25	$2250
30	$2300
35	$2350
40	$2400
Resident	Costs
80	$10,000
100	$11,000
120	$12,000
140	$13,000

5.6 Sweetwater Nursing Home has 150 beds. Its cost and volume data are as follows. Calculate its average and marginal costs for volume ranging from 100 to 140. What patterns do you see?

5.7 It takes a phlebotomist 15 minutes to complete a blood draw. The supplies for each draw cost $4, and the phlebotomist earns $20 per hour. The phlebotomy lab designed to accommodate 20,000 draws per year. Its rent is $80,000 per year. What are the average and incremental costs of a blood draw when the volume is 20,000? 10,000? What principle does your calculation illustrate?

5.8 How would the average and marginal costs change if the phlebotomists wage rose to $24 per hour? What principle does your calculation illustrate?

5.9 A new computer lets the phlebotomist complete a blood draw in 10 minutes. The supplies for each draw cost $4, and the phlebotomist earns $20 per hour. The phlebotomy lab is designed to accommodate 20,000 draws per year. Its rent is $80,000 per year. What is the marginal cost of a blood draw? What principle does your calculation illustrate?

5.10 Use the data in Exercise 5.7. How would the average and marginal costs change if the rent rose to $100,000? What principle does your calculation illustrate?

5.11 A patient visits a clinic. She incurs $10 in travel costs and has a copayment of $20. The clinics total charge is $60. The clinic spends $9 to bill the insurance company for the visit and uses resources worth $51 to produce the visit. The insurance company pays the clinic $40 dollars and spends $11 to process the claim. Describe the cost of the visit from the perspective of the patient, the clinic, the insurer, and society.

5.12 A practice uses $ 40 worth of a dentists time $30 worth of a hygienists time, $10 worth of supplies, and $15 worth of a billing clerks time to produce a visit. The practice charges a patient $25 and charges for insurer $70. The insurer spends an additional $4 to the cost of the visit from the perspective of society, that patient, the practice, and the insurer?

5.13 Kim and Pat underwrite insurance. Each underwrites 50 accounts per month. Each account takes four hours to under underwriter. The value of their time is $40 per hour. Monthly cost for each are $1500 for an office, $2000 for a receptionist, and $2400 for a secretary. Calculate the average the average and incremental cost per case for Kim and Pat.

5.14 If Kim and merge their operations, they would need only one receptionist, and their rent for the joint office would be $2800 per month. All other values stay the same. Calculate the average and incremental cost per case for the merge office. Are there economic for scale at 100 accounts per month? Should Kim and Pat merge their offices?