Why is it necessary to at least have marginal revenue in a health care organization?

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shake99 eNotes educator| Certified Educator

Your question can be considered two ways.

1. First, I'll assume you're talking about the business term “marginal revenue.” Marginal revenue is the money a business makes by increasing its sales by one unit. It can be a complicated economic concept to understand. A company's goal, of course, is to keep marginal revenue above marginal cost—this means they are making a profit. Some health care organizations are for-profit companies. To stay in business, they are going to have to keep marginal revenue high enough, or marginal cost low enough, to keep making a profit. Once revenue falls below cost, it is no longer a financially viable business. They are also going to have to make enough profit to make shareholders happy and help their company expand and develop. 

2. It is possible, however, that you mean “some revenue” by the using the term “marginal revenue” in your question. In other words, you might be asking why a health care organization needs to be making at least some money, or be at least a bit profitable. The answer is similar to the answer in the first paragraph, with an important difference. A non-profit health organization exists to provide a service, not to turn a profit. But to keep operating, they still probably need to generate a little bit of profit—after all, they need to be able to hire people, buy equipment, buy supplies, pay for expensive insurance, etc.

So, although they are not tasked with making money for shareholders or for a parent company that is trying to expand, they can only continue to exist if they make enough money to stay afloat. Due to the nature of competition and inflation, that means making a little more money over time than they did previously. It also means making at least a little more money than they spend.