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A. [#1] FIXED costs are a type of expense an organization must pay for regardless of the number of clients served, for example, a mortgage on a facility. In contrast, additional expense associated with serving one client, for example tongue depressors in a health clinic or beverages served during an airplane flight are called[#2] VARIABLE costs; these costs vary in accordance with the number of people served. B. Some organizations provide services that are consumed collectively, for example, by passengers on an airplane flight or train or by students in a high school classroom. Expenses for airline or a train personnel or high school teachers are fixed in the intermediate term, so they are referred to as [#3] SEMI-FIXED costs. Together, truly fixed costs and costs that are fixed in the intermediate term establish a[#4] SCALE that must be budgeted and paid for even if only one or a few clients are served. In other words, if a plane is going to fly, the plane and crew must be available. Making the necessary minimum expenditure permits one or more clients to be served. C. A per pupil, per inmate, per client, or per passenger expenditure is an average cost that often is referred to as a [#5] MARGINAL cost. This type of cost declines as additional users (e.g. jail inmates) are accommodated within existing capacity (e.g. a jail). Per inmate expenditures are high in Maine because many jails have very small to small capacities, which causes [#6] CAPACITY UTILIZATION DISECONOMIES of small scale that drive up unit costs. A reasonably large jail like the Cumberland County Jail achieve cost savings from [#7] CAPACITY of larger scale, while a slightly larger but not hugely greater jail size would likely achieve more returns to scale (unit cost savings). When facilities are too large diseconomies of very large scale emerge. D. School funding formulas usually grant assistance on a per pupil (average cost) basis. This linear funding approach assumes that each student served requires an equal number of dollars to educate. When a new student enters a school district, the formula assumes that the district will need to increase spending by the average per pupil cost. Another way to think about this average costing approach is that all costs are treated as variable. In fact, the [#8] MARGINAL cost associated with serving one additional student may be close to zero if there is space available in the school. 2 E. An airplane has a given number of seats or a [#9]CAPACITY that permits a maximum number of passengers and crew members to travel. When only a small number of seats are filled, there is low [#10] CAPACITY UTILIZATION DISECONOMIES. F. Small, rural public schools and university campuses in low population density locations may face high unit costs due to a combination of small [#11] CAPACITY and seats in classrooms not being filled. G. Demand for public services derives in part from [#12] SERVICE USER POPULATION SPENDING THRESHOLD TASTES AND PREFERENCES UNIT of the population served that occur when individuals and/or households are unable to achieve a reasonable standard of living or require compensatory services to achieve their potential. In contrast, demands also arise from [#13] NEEDS of the population that tend to vary with income level; this component of spending demand is not characterized as a remedy for circumstances that are beyond the individual’s or household’s control. H. The number of residents in a community often is an important source of spending demand. However, to accurately forecast spending, factors that affect the number of units of service to be delivered must be considered. Accurately sizing water systems and sewerage treatment and estimating demand for emergency response capacity (fire and emergency medical) and policing requires the analyst to consider the size of the combined resident and non-resident [#14] SERVICE USER POPULATION SPENDING THRESHOLD TASTES AND PREFERENCES UNIT I. When demands for spending exceed revenue capacity, a state or local government is unable to pay for all needed services. In a [#15]ECONOMIES system of government, vastly differing sizes and resource capacities of governments ensure that there will be mismatches between spending requirements and revenue capacity.
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