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Production Cost Analysis And Estimation Applied Problems 2

Please answer all parts of questions!


Please complete the following two applied problems:

Problem 1:

William is the owner of a small pizza shop and is thinking of increasingproducts and lowering costs. William’s pizza shop owns four ovens andthe cost of the four ovens is $1,000. Each worker is paid $500 per week.

Show all of your calculations and processes. Describe your answer foreach question in complete sentences, whenever it is necessary.

  1. Which inputs are fixed and which are variable in the productionfunction of William’s pizza shop? Over what ranges do there appear to beincreasing, constant, and/or diminishing returns to the number ofworkers employed?
  2. What number of workers appears to be most efficient in terms of pizza product per worker?
  3. What number of workers appears to minimize the marginal cost ofpizza production assuming that each pizza worker is paid $500 per week?
  4. Why would marginal productivity decline when you hire more workers in the short run after a certain level?
  5. How would expanding the business affect the economies of scale?When would you have constant returns to scale or diseconomies of scale?Describe your answer.

Problem 2:

The Paradise Shoes Company has estimated its weekly TVC function fromdata collected over the past several months, as TVC = 3450 + 20Q +0.008Q2 where TVC represents the total variable cost and Q representspairs of shoes produced per week. And its demand equation is Q = 4100 –25P. The company is currently producing 1,000 pairs of shoes weekly andis considering expanding its output to 1,200 pairs of shoes weekly. Todo this, it will have to lease another shoe-making machine ($2,000 perweek fixed payment until the lease period ends).

Show all of your calculations and processes. Describe your answer foreach item below in complete sentences, whenever it is necessary.

  1. Describe and derive an expression for the marginal cost (MC) curve.
  2. Describe and estimate the incremental costs of the extra 200 pairs per week (from 1,000 pairs to 1,200 pairs of shoes).
  3. What are the profit-maximizing price and output levels forParadise Shoes? Describe and calculate the profit-maximizing price andoutput.
  4. Discuss whether or not Paradise Shoes should expand its outputfurther beyond 1,200 pairs per week. State all assumptions andqualifications that underlie your recommendation.

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