Homework Answers
Solution
The Harnett County Healthcare System
Computation of the level of demand at which the Healthcare system is indifferent between the two models:
The Healthcare system would be indifferent at the demand level, where the total costs of both the models equal.
Total cost = variable cost + fixed cost
Assuming a demand level of X,
Model A –
Variable cost = $150 per use
Fixed cost = $75,000
Total cost of Model A = $150X + $75,000
Model B -
Variable cost = $110 per use
Fixed cost = $90,000
Total Cost = $110X + $90,000
At indifferent point,
Total cost of Model A = Total Cost of Model B
$150X + 75,000 = $110X + 90,000
$150X - $110X = 90,000 – 75,000
$40X = $15,000
X = 15,000/40 = 375 uses
At demand of 375 uses, the Healthcare system would be indifferent between the two models.
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