This study examines the long-run and shortrun behaviour of public hospital average costs in two Australian States: Victoria and Queensland. Using adjusted weighted inlierequivalent separations as a measure of hospital output, and floor area as a measure of capacity, the study finds a hump-or ' ∩ '-shaped long-run average cost curve at the 5 per cent significance level in both data sets. The study also finds a saucer-or ' ∪ '-shaped relationship between capacity utilisation and short-run average cost at the 5 per cent level.
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