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Extended Applications & Group Projects

I. Hospital Administration
Southwest Hospital has an operating room used only for eye surgery. The annual cost of
rent, heat, and electricity for the operating room and its equipment is $360,000, and the
annual salaries of the people who staff this room total $540,000.
Each surgery performed requires the use of $760 worth of medical supplies and drugs.
To promote goodwill, every patient receives a bouquet of flowers the day after surgery. In
addition, one-quarter of the patients require dark glasses, which the hospital provides free
of charge. It costs the hospital $30 for each bouquet of flowers and $40 for each pair of
glasses.
The hospital receives a payment of $2000 for each eye operation performed.
1. Identify the revenue per case and the annual fixed and variable costs for running the
operating room.
2. How many eye operations must the hospital perform each year in order to break even?
3. Southwest Hospital currently averages 70 eye operations per month. One of the nurses
has just learned about a machine that would reduce by $100 per patient the amount of
medical supplies needed. It can be leased for $100,000 annually. Keeping in mind the
financial cost and benefits, advise the hospital on whether it should lease this machine.
4. An advertising agency has proposed to the hospital’s president that she spend
$20,000 per month on television and radio advertising to persuade people that South-
west Hospital is the best place to have any eye surgery performed. Advertising
account executives estimate that such publicity would increase business by 40 opera-
tions per month. If they are correct and if this increase is not big enough to affect
fixed costs, what impact would this advertising have on the hospital’s profits?
5. In case the advertising agency is being overly optimistic, how many extra operations
per month are needed to cover the cost of the proposed ads?
6. If the ad campaign is approved and subsequently meets its projections, should the
hospital review its decision about the machine discussed in Question 3?

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138 ● Chapter 1 Linear Equations and Functions

II. Fundraising
At most colleges and universities, student organizations conduct fundraising activities, such
as selling T-shirts or candy. If a club or organization decided to sell coupons for submarine
sandwiches, it would want to find the best deal, based on the amount the club thought it
could sell and how much profit it would make. In this project, you’ll try to discover the
best deal for this type of fundraiser conducted in your area.
1. Contact at least two different sub shops in your area from among local sub shops, a
national chain, or a regional or national convenience store chain. From each contact,
find the details of selling sub sandwich coupons as a fundraiser. In particular, deter-
mine the following for each sub shop, and present your findings in a chart.
(a) The selling price for each coupon and its value to the coupon holder, including any
expiration date
(b) Your cost for each coupon sold and for each one returned
(c) The total number of coupons provided
(d) The duration of the sale
2. For each sub shop, determine a club’s total revenue and total costs as linear func-
tions of the number of coupons sold.
3. Form the profit function for each sub shop, and graph the profit functions together.
For each function, determine the break-even point. Find the marginal profit for each
function, and interpret its meaning.
4. The shop with the best deal will be the one whose coupons will provide the maxi-
mum profit for a club.
(a) For each shop, determine a sales estimate that is based on location, local popular-
ity, and customer value.
(b) Use each estimate from (a) with that shop’s profit function to determine which shop
gives the maximum profit.
Fully explain and support your claims; make and justify a recommendation.

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