# Bus 640

Topics: Marginal cost, Cost, Costs Pages: 4 (1025 words) Published: February 4, 2013
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 employedTotal Cargo Transported (tons)
15
212
321
432
540
646
751
850

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?

The inputs that are fixed are the driver’s monthly salaries. The variable inputs are the amount of trips the drivers take and the amount they haul each time. Drivers 1, 2, and 3 appear to be delivering a diminishing return due to their low number of tons delivered. Drivers 5, 6, 7, and 8 are increasing returns due to their high weight deliveries and driver 4 appears to be constant.

b.What number of drivers appears to be most efficient in terms of output per driver?

Four drivers appear to be most efficient in terms of output per driver (drivers 5, 6, 7, 8). Their total cargo transported is only a few tons between one another.

c.What number of drivers appears to minimize the marginal cost of transportation assuming that all drivers are paid the same salary?

Drivers 1, 2, and 3 appear to be minimizing the marginal cost of transportation assuming that all drivers are paid the same salary. Driver 4 seems to be within the median, neither minimizing the marginal cost of transportation nor maximizing efficiency.

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...