Production Cost Analysis

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Production Cost Analysis and Estimation Applied Problems

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) | 12345678 | 512213240465150 |

Drivers (V) | Total Cargo (TP) | V | TP | MP=P/V | AP=TP/V | 1 | 5 | | | | 5 | 2 | 12 | 1 | 7 | 7 | 6 | 3 | 21 | 1 | 9 | 9 | 7 | 4 | 32 | 1 | 11 | 11 | 8 | 5 | 40 | 1 | 8 | 8 | 8 | 6 | 46 | 1 | 6 | 6 | 7.67 | 7 | 51 | 1 | 5 | 5 | 7.29 | 8 | 50 | 1 | -1 | -11 | 6.25 |
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 variable in the production function of Jennifer Trucking Company are the amount of trips the drivers take and how much they haul. The inputs that are fixed are the driver’s monthly salary. It looks like drivers 1, 2, & 3 are delivering a diminishing return due to their low numbers of ton delivered. Drivers 5, 6, 7, & 8 appear to be increasing their returns due to their high tonnage delivery. Driver 4 seems to be constant.

b. What number of drivers appears to be most efficient in terms of output per driver?
The numbers of drivers that appear to be most efficient in terms of output per driver are drivers 5, 6, 7 & 8. Their total cargo transported is pretty close in tonnage.
c. What number of drivers appears to minimize the marginal cost of transportation assuming that all drivers are paid the same salary?

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