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6 factors that affect costs
volume (output)
quality of output (higher increases cost)
scope of output (diversification)
input prices (higher increases cost)
relative efficiency (higher lowers cost)
regulations (more increases cost)
fixed cost
remain stable (doesn’t change) as volume increases
ex: IV hood certification fees, salaries
variable cost
increases as volume increases and vice versa
ex: labels, syringes, wages
economies of scale
causes marginal costs to decrease as volume increases - increased production efficiency
relevant range
capacity for efficient production
range in volume over which marginal const continues to decrease - once exceeded marginal costs increase
break-even point
when total revenue received equals total costs associated with sale of services/products
return on investment (ROI)
profit earned on investment
ROI = (investment total gain - investment cost)/investment cost
big positive ROI
GOOD - for every $ invested, getting more $ back
postive close to 0 ROI
might be able to find better way to invest my money
negative ROI
BAD - money pit
net present value (NPV)
est. absolute size of return (financial value) from project based on cash flow projections
+ and big NVP = GOOD
NPV vs ROI vs break-even
NPV accounts for time value of $ - ROI & break-even don’t
