The basic purpose of this paper is to estimate the minimum optimal scale of the Korean general hospitals and the impacts of new entrant with MOS on the market performance. It was hypothesized that. According to economic theory average cost would initially decline as size is increased, and than reach at bottom (MOS) but that, after some point, average cost would begin to rise because of increased problems of internal control and communications. If the net relationship of cost to size could be determined, hospital construction plans could´´, be appropriately adjusted and great savings could be made.
The main findings of the analysis were consistent with our hypotheses. The results indicated that the minimum optimal scale of hospitals with medical school was 1, 272.800 patient days per year (or 820 beds) and that of hospitals without medical school was 853.500 patient days per year (or 552 beds). The minimum optimal scale by region is 917,600 patient days per year (or 593 beds) in large city hospitals 359.200 patient days per year (or 236 beds) in city hospitals, and 287.400 patient days per year (or 190 beds) in county hospitals.
Our findings suggest that small hospitals with medical school should not generally be built because they are likely to be of uneconomic size. Large hospitals having no medical school are also likely to be uneconomic, since there are no additional economies associated with increased size
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