California's Sutter Delta Medical Center paid $250,000 for a fiber-optic digital operating suite that it hopes will reduce the costs of performing minimally invasive surgeries. The new technology produces exceptionally clear digital images from a tiny camera placed inside the patient and close to the site of surgery, allowing surgeons to conduct the surgery while looking only at video monitors. The cameras transmit images to monitors that hang above the operating table, thereby reducing the amount of operating room clutter. After installing the new equipment, Sutter observed a 15 minute reduction in average operating room time, reductions in the average time under anesthesia, and quicker patient recovery times. Sutter has performed about 50 operations with the equipment thus far.
Questions for Discussion
1. Discuss how operating room total costs, average costs, and marginal costs might change following the adoption of the the fiber-optic digital imaging equipment.
2. Discuss how you might go about evaluating the rate of return for the new equipment.