A hospital is a supplier of healthcare services and is therefore an economic unit. It uses factors of production to produce healthcare services. The typical microeconomic theory on production and cost is also applied in the case of healthcare service production. In a short-term period, the production of healthcare services is determined by the size of the variable input (medical and nonmedical staff) since the technology is constant. The hospital aims to produce to the point at which the average product is at a maximum level and the average cost is at its lowest. In the long term, the output produced depends on the optimal combination between personnel and technological equipment since both are variable production factors. Each hospital determines its output based on the profit maximization rule, which implies that marginal revenue is equal to marginal cost. This chapter:
Analyzes short and long-term production theory
Examines the short and long-term cost and presents techniques with which a hospital can make rational decisions based on economic evaluations
Presents the different market structures and provides useful information on how hospitals may determine their optimal pricing level.