Health care costs are expected to rise more than 10 percent into 2011, according to a survey of insurers by Aon Consulting Worldwide. If the increase in costs is expected to solely come from increased wages to nurses and doctors, then for the health care industry:
A) Variable costs are increasing.
B) Fixed costs are increasing.
C) Long run average total cost is decreasing.
D) Productivity is increasing.

Question

Quizplus · Accepted Answer

If the increase in costs is due to increased wages to nurses and doctors, then it is likely that variable costs are increasing. This is because wages to employees are a variable cost, meaning that they change depending on the level of output or activity in the healthcare industry. Fixed costs are not impacted by changes in output or activity, so it is less likely that they are increasing. Long run average total cost refers to the average cost per unit of output in the long run, and it is not necessarily decreasing or increasing based on this information. Productivity is not directly related to the increase in costs due to increased wages, so it is not a relevant option.

Health Care Costs Are Expected to Rise More Than 10