1. Suppose that with 400 patients per year, the SAFC, SATC, and SMC of operating a physician clinic are $10, $35, and $30 per patient, respectively. Furthermore, suppose the physician decides to increase the annual patient load by one more patient. Using short-run cost theory, explain the impact of this additional patient on the SAVC and SATC.
a. Does SAVC increase or decrease? Why?
b. Does SATC increase or decrease? Why?
2. a. Draw and LRATC curve.
b. Where are economies of scale demonstrated along the curve? Show.
c. What are economies of scale?
d. Where along the curve are diseconomies of scale demonstrated? Show.
e. What are diseconomies of scale?