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3.Compared with a drip system, a new type of infusion pump reduces the cost of administering chemotherapy from $25 per dose to $20 per dose. The complication rate of each system is 2 percent. Which should you choose? What sort of analysis should you do?
4.You are comparing replacing the current lab, which has a cost function of C = 200,000 + 25 × Q, with an automated lab that has a cost function of C = 300,000 + 20 × Q. Doing so would reduce the error rate from 1.5 percent to 1 percent. Your volume is expected to be 18,000 tests per year. Should you choose the automated lab? Briefly explain your logic.
Expert Solution Preview
In the field of medicine, various decisions need to be made based on cost-effectiveness and efficiency. This involves careful analysis and evaluation of different options available. In the following answers, we will assess two scenarios, one related to the administration of chemotherapy and the other regarding the choice of laboratory setup.
Answer to question 3:
To determine which system, either the drip system or the new infusion pump, should be chosen for administering chemotherapy, a cost-benefit analysis should be conducted. The cost of administering chemotherapy plays a significant role, along with the complication rate.
Using the drip system:
Cost per dose = $25
Complication rate = 2%
Using the new infusion pump:
Cost per dose = $20
Complication rate = 2%
In this case, the cost of administering chemotherapy is lower with the new infusion pump ($20 per dose) compared to the drip system ($25 per dose). However, the complication rate remains the same for both systems (2%).
Based on the information provided, the new infusion pump should be chosen over the drip system. This decision is based on cost-effectiveness, as it offers a saving of $5 per dose.
Answer to question 4:
To determine whether replacing the current lab with an automated lab is a favorable decision, a cost analysis needs to be performed. The cost function of both labs, along with the error rates, should be considered.
Current lab cost function: C = 200,000 + 25 × Q
Automated lab cost function: C = 300,000 + 20 × Q
Considering a volume of 18,000 tests per year, we can calculate the costs for both options.
For the current lab:
C = 200,000 + 25 × 18,000 = $650,000
For the automated lab:
C = 300,000 + 20 × 18,000 = $660,000
The current lab has an error rate of 1.5%, while the automated lab has an error rate of 1%.
Based on the information provided, the automated lab seems to be the more cost-effective choice. Although the initial cost of setting up the automated lab is higher, the cost per year for the current lab ($650,000) is lower than that of the automated lab ($660,000). Moreover, the error rate is also lower with the automated lab (1% compared to 1.5%).
Therefore, based on cost and error rate considerations, choosing the automated lab would be a logical decision.