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Q. a - For Critical Thinking

Economics Today
Found in: Page 288

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Short Answer

If a government agency decided to fund the construction of a private hospital in an area in which other private hospitals already are just breaking even, why might one of the other private hospitals cancel plans to expand the size of its facility?

Since they've reached their breakeven point, where their chance expenses have been paid and capital has received the expected return, they've reached their full capacity.

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Step by Step Solution

Step 1: introduction

In financial aspects, business-and especially cost bookkeeping, the break-even point is the point at which total expense and absolute income are equal. Even though there is no total deficit or gain, and the initial investment has been "balanced," opportunity costs have been paid, and investment has received the expected return.

Step 2: explanation 

If an administration organization chooses to subsidize the development of a private clinic in a space where other private medical clinics are already equaling the initial investment because they have reached their breakeven point where their chance expenses have been paid and other private clinics will forsake their ambitions to expand their offices now that their cash has achieved the desired return.

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