How many beds should a hospital department serve?

Departmental cost functions are constructed for selected hospital departments, using total number of beds in the hospital served as a proxy output measure. Calculation of maxima or minima for the resulting cost functions reveals that, on average, different departments have extremes in their cost functions of different levels of output. A relative cost index is constructed, using parameters of the departmental cost functions, and departmental costs are compared across regions. The significance of departmental differences in optimum output is discussed with regard to sharing of services and modified system design.