03 Jun Question Production Cost Analysis and Estimation Applied Problems
Question
Production Cost Analysis and Estimation Applied Problems
Please, complete the following 3 applied problems in a Word or Excel document. Show all your
calculations and explain your results. Submit your assignment in the drop box by using the
Assignment Submission button.
1. Jennifer Trucking Company operates a large rig transportation business in Texas that
transports locally grown vegetables to San Diego, California. The company owns 5 large rigs and
hires local drivers paid fixed salaries monthly, regardless of the number of trips or tons of cargo
that each driver transports each month. The below table presents details about the number of
drivers and the total cargo transported by the company at different staff levels.
Drivers employed
Total Cargo Transported (tons)
1
5
2
12
3
21
4
32
5
40
6
46
7
51
8
50
a.
Which inputs are fixed and which are variable in the production function of Jennifer
Trucking Company? Over what ranges do there appear to be increasing, constant
and/or diminishing returns to the number of drivers employed?
b. What number of drivers appears to be most efficient in terms of output per driver?
c. What number of drivers appears to minimize the marginal cost of transportation
assuming that all drivers are paid the same salary?
1. 2. The Palms Dry Cleaning Shop in Fort Lauderdale, Florida, faces a highly seasonal demand for
its services, as the snow-birds retirees flock to Florida in mid-fall to enjoy the mild winter
weather and then return to their main homes in mid-spring. Given this seasonality, Palms tries to
keep the overhead costs as low as possible and therefore, often uses seasonal contracted labor to
man its operations. The following table shows the labor costs in each month of operation over the
past 12 months as well as the total number of garments that were dry-cleaned in each month.
Palms pays fixed wages per hour to each employee, and we can assume that the costs of other
variable inputs (such as chemicals, electricity, etc) have remained constant.
Month
June
July
August
September
October
TVC ($)
35,490
42,470
48,980
52,530
37,480
Garments cleaned
4,500
5,575
6,300
6,525
5,325
November
December
January
February
March
April
May
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