Question

Question 7

10 Points

The National Institute of Health conducted a study to test male birth control pills by using two groups of mice as the study participants. Group A received a drug called Nokids which cost $20,000 and Group B received a drug called Noparents which cost $5,000. The administrative cost to administer each drug is $500 a day. Group A received the drug for 10 days and Group B received the drug for 14 days. What is the incremental cost of Nokids?

While conducting the experiment the researchers learned that both medications were contaminated with a poisonous substance. Group A had a survival rate (incremental effectiveness) of 18 days while Group B had a survival rate (incremental effectiveness) of 14 days.

Using the scenario above, which medication has the highest incremental cost

a. Nokids

b. Noparents

c. The incremental cost is the same for both medications

d. It is not possible to calculate both incremental costs from the provided information.

Answer 1

SOLUTION:

(d) It is not possible to calculate both incremental costs from the provided information.

Explanation : Incremental cost is also called as Marginal cost. It is defined as the cost of additional unit produced of any item or product. In other words, it is the cost that a business entity has to bear, inorder to produce an additional unit of input or the product as the case may be.

In the above case, two groups received two different drugs ( Nokids and Noparents ) for specific number of days but only the total cost of the drugs is provided in both cases. Additionally, the administration cost and survival rate are also mentioned.

Thus, it is difficult to calculate the incremental cost in both cases without providing the per unit (or production) details and find which medication has the highest incremental cost.