Cost Analysis

A: Clinical Programs
You are given the costs and benefits measured as the number of lives saved of four alternative clinical programs designed to treat a single disease. Using the data, answer the following questions.

Calculate the cost-effectiveness ratio (the cost per life saved).
Which is the best program in terms of
total number of lives saved
cost per life saved
Compare alternative pairs of programs in terms of benefits and cost-effectiveness.
Which program do you favor and why?
A. Clinical programs

The following table presents the costs and benefits (measured as the number of lives saved) of four alternative clinical programs designed to treat a single disease.

Program Cost ($) Lives saved Cost-effectiveness ratio
A 200,000 20
B 200,000 24
C 400,000 24
D 400,000 30

1.Defining the cost-effectiveness ratio as the cost per life saved, complete the chart.

2. Which is the best program?
(i) In terms of total number of lives saved
(ii) In terms of cost per life saved

3. Compare pairs of programs in terms of benefits and cost-effectiveness.
(i) A and B
(ii) A and C
(iii) A and D
(iv) B and C
(v) B and D
(vi) C and D

4. Which program do you favor and why?

B: Screening for Cancer
For a hypothetical three-stage screening protocol for a type of cancer, you are given the costs and rates of detection. Using the data, answer the following questions.

Calculate the average cost per cancer detected and the marginal cost per cancer detected at each stage of the screening protocol.
Assume that the marginal benefit per treated case is $10,000 per person. What would be the optimal screening stage, given the costs? Give reasons for your answer.
What is it about total/marginal revenues and/or total/marginal costs that determine this profit maximizing price?
B. Screening for cancer

Consider the hypothetical three-stage screening protocol for a type of cancer where a greater number of people are screened at each stage, incurring additional costs as each stage is accomplished. The protocol has the following costs and rates of detection:

Screening stage Number of cases detected Total costs ($) Average cost per cancer detected Marginal cost per cancer detected
1 200 400,000
2 210 520,000
3 212 600,000

1. Complete the chart by calculating the average cost per cancer detected and the marginal cost per cancer detected at each stage of the screening protocol.

2. Assume that the marginal benefit per treated case is $10,000 per person. What would be the optimal screening stage, given the costs? Explain your answer in economic terms.