Economies of scale occur when the average cost per unit of output declines as volume increases. For example, if
the average cost per visit at a clinic is $50 at a volume of 1,000 visits but only $40 at 2,000 visits, then the clinic is experiencing economies of scale. Yet, as we have covered in this class, the payment system is largely moving from volume-based to value-based. Is there a problem for providers to seek more volumes as it relates to their cost structure given the fact of economies of scale? In your opinion, what is the best cost allocation strategy(or method) to achieve profitability if you were an executive in a healthcare organization?