0. PART 1: Fill-In Answers – select the appropriate term to fill ineach blank.

   TERMS:

   Capacity
   Capacity Utilization Diseconomies
   Economies
   Federalist
   Fixed
   Marginal
   Needs
   Scale
   Semi-fixed
   Service User Population Spending threshold Tastes and preferencesUnit
   Variable

A. [#1] ______________ costs are a type of expense anorganization must pay for regardless of the number of clientsserved, for example, a mortgage on a facility. In contrast,additional expense associated with serving one client, for exampletongue depressors in a health clinic or beverages served during anairplane flight are called[#2] ______________ costs; these costsvary in accordance with the number of people served.

B. Some organizations provide services that are consumedcollectively, for example, by passengers on an airplane flight ortrain or by students in a high school classroom. Expenses forairline or a train personnel or high school teachers are fixed inthe intermediate term, so they are referred to as [#3]__________________ costs. Together, truly fixed costs and coststhat are fixed in the intermediate term establish a[#4]______________________ that must be budgeted and paid for even ifonly one or a few clients are served. In other words, if a plane isgoing to fly, the plane and crew must be available. Making thenecessary minimum expenditure permits one or more clients to beserved.

C. A per pupil, per inmate, per client, or per passengerexpenditure is an average cost that often is referred to as a [#5]_____________ 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 manyjails have very small to small capacities, which causes [#6]_______________________ of small scale that drive up unit costs. Areasonably large jail like the Cumberland County Jail achieve costsavings from

[#7] ______________________________ of larger scale, while aslightly larger but not hugely greater jail size would likelyachieve more returns to scale (unit cost savings). When facilitiesare too large diseconomies of very large scale emerge.

D. School funding formulas usually grant assistance on a perpupil (average cost) basis. This linear funding approach assumesthat each student served requires an equal number of dollars toeducate. When a new student enters a school district, the formulaassumes that the district will need to increase spending by theaverage per pupil cost. Another way to think about this averagecosting approach is that all costs are treated as variable. Infact, the [#8] ____________________ cost associated with servingone additional student may be close to zero if there is spaceavailable in the school.

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E. An airplane has a given number of seats or a [#9]__________________ that permits a maximum number of passengers andcrew members to travel. When only a small number of seats arefilled, there is low [#10] _________________________.

F. Small, rural public schools and university campuses in lowpopulation density locations may face high unit costs due to acombination of small [#11] __________________ and seats inclassrooms not being filled.

G. Demand for public services derives in part from [#12]_________________________ of the population served that occur whenindividuals and/or households are unable to achieve a reasonablestandard of living or require compensatory services to achievetheir potential. In contrast, demands also arise from [#13]____________________________ of the population that tend to varywith income level; this component of spending demand is notcharacterized as a remedy for circumstances that are beyond theindividual’s or household’s control.

H. The number of residents in a community often is an importantsource of spending demand. However, to accurately forecastspending, factors that affect the number of units of service to bedelivered must be considered. Accurately sizing water systems andsewerage treatment and estimating demand for emergency responsecapacity (fire and emergency medical) and policing requires theanalyst to consider the size of the combined resident andnon-resident [#14] ___________________________.

I. When demands for spending exceed revenue capacity, a state orlocal government is unable to pay for all needed services. In a[#15] ___________________ system of government, vastly differingsizes and resource capacities of governments ensure that there willbe mismatches between spending requirements and revenuecapacity.