It takes a phlebotomist 15 minutes to complete a blood draw. The supplies for each draw cost $4, and the phlebotomist earns $20 per hour. The phlebotomy lab is designed to accommodate 20,000 draws per year. What are the average and incremental costs of a blood draw when the volume is 20,000? 10,000? What principle does your calculation illustrate?
To calculate the average and incremental costs of a blood draw, we need to consider the fixed and variable costs involved.
The fixed costs include the phlebotomist's salary, which can be calculated by converting the hourly rate into a cost per minute. Since the phlebotomist earns $20 per hour, that translates to $20/60 = $0.33 per minute.
The variable costs include the supplies for each blood draw, which amount to $4 per draw.
Now, let's calculate the average and incremental costs for different volumes of blood draws:
1. When the volume is 20,000 draws per year:
- Average cost: The average cost per draw is the sum of fixed and variable costs. The fixed cost is $0.33 per minute multiplied by the time per draw, which is 15 minutes, resulting in $4.95. Adding the variable cost of $4, the average cost per draw is $4.95 + $4 = $8.95.
- Incremental cost: The incremental cost is the additional cost of producing one more unit. Since the volume is 20,000 draws, the incremental cost remains the same as the average cost, which is $8.95.
2. When the volume is 10,000 draws per year:
- Average cost: Using the same approach, the fixed cost per draw is still $4.95. However, since the volume is halved, the average cost per draw is now $4.95 + $4 = $8.95.
- Incremental cost: The incremental cost remains the same as the average cost, which is $8.95.
The principle that this calculation illustrates is the concept of economies of scale. In this case, the average and incremental costs do not change with varying volumes. This suggests that the costs of the phlebotomy lab have reached a level where producing more blood draws does not significantly affect the overall cost per draw. In other words, the lab is operating efficiently, resulting in no additional cost savings when increasing the volume.