Econ 240: Costs and Benefits for Assignment 1

Use this information together with the instructions on your Question Set to answer the questions.

URGENT CARE

Total Costs: Urgent Care Center

• Labor and Other Variable Costs
  • Salaries and Benefits (physicians) $1,050,000
  • Supplies and Misc. Overhead $ 210,000
• Capital Cost and Other Fixed Costs
  • Annualized Building and Equipment $ 126,000
  • Administrative $ 37,800

• TOTAL COST $1,423,800

Benefits: Urgent Care Center

A 20% increase in primary care physicians leads to a 6% decrease in all-cause mortality. [1] Given the number of physicians already practicing in the county, an urgent care center with five primary care physicians would be a 0.71% increase in physicians. The benefits of the urgent care center, measured as additional lives saved each year, are:

• 5 physicians = 0.263 additional lives saved each year

[1] Starfield, Barbara, Leiyu Shi, Atu Grover, and James Macinko, The Effects of Specialist Supply on Populations Health: Assessing The Evidence Health Affairs, Issue 97, v. 1

TRAUMA CENTER

Total Costs: Trauma Center

• Labor Cost and Other Variable Costs
  • Salaries and Benefits $2,769,300
  • Supplies and Misc. Overhead $ 553,860
• Capital Cost
  • Annualized Building and Equipment $1,800,045
  • Administrative $ 450,000

• TOTAL COST $5,573,216

Benefits: Trauma Center

The number of trauma centers in Pennsylvania is increasing by 4-5% each year. Mortality for moderate injuries has been reduced in PA from 7.2% to 5.7% where trauma centers are accessible. [2] Given the population size of our Hahnemann County the benefit of our trauma center is:

• Trauma Center = 9.360 additional lives saved each year

Econ 240: Assignment 1: Opportunity Cost of Facility Choice

Download the document entitled "Cost&Benefit-QS1. The data for answering the questions are in that document.

An opportunity cost measures the relative benefit of two alternative uses of the same resource. In this case our resource is the money we expend to create our facilities, and our benefit is the lives saved by an Urgent Care Center versus a Trauma Center.

On your Cost&Benefit sheet you are given the annual cost of operating an Urgent Care Center and the annual cost of operating a Trauma Center. You are also given the lives saved annually by a UCC with five physicians (labeled "Benefits") and the lives saved annually by a Trauma Center (labeled "Benefits"). The Trauma Center costs a lot more to operate but it also lowers the mortality in the county by much more. We would like to find the opportunity cost of making the greater expenditure and saving more lives, where our benefit will be measured as lives saved per dollar spent.

Question 1: First, we must make sure we are putting the same amount of resource into each use. We need a common denominator: lives saved per $1 spent. We get this by dividing the lives saved in each facility by their respective operational costs. But we will use a common denominator of $100,000 instead of $1 in order to avoid tiny decimals.

Step 1: Take the total cost of each facility and divide by $100,000. That gives you total cost expressed as units of $100,000. Use that smaller number to divide into the lives saved. (Calculate to second decimal place.)

Step 2: Divide the units of $100,000 into the lives saved by each facility. What are the lives saved per $100,000 spent for each facility? (Calculate to the third decimal place.

Question 1: (show your calculations)

Step 1:

(a) Divide the Total Cost of the UCC by $100,000, to convert it to units of $100,000.

(b) Divide the Total Cost of the Trauma Center by $100,000 to convert it to units of $100,000

Step 2:

(a) Find lives saved per $100,000 for the Urgent Care Center:

(b) Find lives saved per $100,000 for the Trauma Center: