top-rated free essay

# Week 3 Assignment

By vixendkb Apr 27, 2015 497 Words
﻿

BUS640: Managerial Economics
Professor John Sellers

Problem 1:
a Which inputs are fixed and which are variable in the production function of William’s pizza shop? Over what ranges do there appear to be increasing, constant, and/or diminishing returns to the number of workers employed? Fixed: Oven costs; building costs; normal utility costs.

Variable: # of workers; raw material costs; electricity costs; per unit costs. b What number of workers appears to be most efficient in terms of pizza product per worker? Six workers produce an average of 190 pizzas.

c What number of workers appears to minimize the marginal cost of pizza production assuming that each pizza worker is paid \$500 per week? Again, six workers. The rate for each is the same, so minimal cost per pizza is the same as production per worker. d Why would marginal productivity decline when you hire more workers in the short run after a certain level? Training time needed to bring workers to efficient status, along with their experience. Salary costs are up front and prior to full efficiency point. e 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. As far as number of workers, the range between 2-5 workers provides fairly consistent production numbers, and you can reasonably assume that profit per pizza is equal or more up to the level of five workers. Problem 2

a Describe and derive an expression for the marginal cost (MC) curve. Slope of the TVC which is positive and roughly 20. The actual derivative formula for MC=20+.016Q b Describe and estimate the incremental costs of the extra 200 pairs per week (from 1,000 pairs to 1,200 pairs of shoes). The incremental cost can be determined by plugging in the incremental number of pairs being 200, so you get MC=20+.016 x 200=23.2. Add in the 2000 per week, and the total cost is 2023.2 c What are the profit-maximizing price and output levels for Paradise Shoes? Describe and calculate the profit-maximizing price and output. We already know that MC=20+.016Q

P=(4100-Q)/25
TR= Q x (4100-2Q)/25
MR= (4100-2Q)/25 = 820-.08Q
20+.016Q = 820 - .08Q
800 = .096Q
Q = 800/.096 = 8333.33

d) Discuss whether or not Paradise Shoes should expand its output further beyond 1,200 pairs per week. State all assumptions and qualifications that underlie your recommendation. By distinguishing between short and long run, the short run profits are maximized at Q = 8333.33, any expansion would not maximize profits. The firm thinks that the long run is likely to go up, then it could consider an expansion and a new lease would be required. The cost of a new lease is 2000 justified only when demand might rise.

References
Douglas, E. (2012). Managerial Economics (1st ed.). San Diego, CA: Bridgepoint Education. This text is a Constellation™ course digital materials (CDM) title.

## Related Documents

• ###### Microeconomics Questions week 3

...WEEK THREE QUESTIONS: 38) What is Utility? "The utility of a consumer is a measure of the satisfaction the consumer derives from consumption of goods and services" (p. 270) 39) What is the Law of Diminishing Marginal Utility? "According to the principle of diminishing marginal utility, each successive unit of a good or service con...

• ###### Assignment 3

...DEPARTMENT OF ECONOMICS Economics 340H – FA 07 OSH Assignment #3 Instructor: Christopher Michael Due Date: Dec 6, 2007 Question 1 – Perfect Competition and Monopolistic Competition Superior Metals Company has seen its sales volume DECLINE over the last few years as the result of rising foreign imports. In order to INCR...

• ###### week 3 assignment

... Complete answers showing detail both in the tasks and the KSAOs (type, proficiency, etc). This assignment is worth 10 points. May 4, 2015 Job Analysis Matrix: Commercial Lines Underwriter Job Summary The commercial lines underwriter is responsible for underwriting and maintaining the organization’s business, residential, and religious organ...

• ###### Marketing : Week 3 Assignment

...﻿ China and India BUS 330 Principles of Marketing Instructor: Cynthia Goussak March 17, 2014 Video game consoles have continued to dominate the youth market not only in the United States but overseas as well. With three primary focuses, Playstation, Xbox and the Wii, game consoles have invaded households...

• ###### Biology Week 3 Assignment

...﻿ Evolution Lab: Finches and Natural Selection Antonio Joseph O. dela Merced Principles of Biology Instructor: Matthew Scholten Evolution Lab: Introduction Evolution is a natural process in which animals adapt to their surroundings so that they may survive. There are many variables in an animal’s environment that influence its e...

• ###### Week 3 Individual Assignment

...﻿ Environmental Scanning of Wal-Mart and Target Lizette Morales MGT/498 March 30, 2016 Week 3 There are many successful corporations in the world because they are aware that change and trends can occur at anytime. It is essential for corporations to be susceptible to change as well as using tools to show the interna...

• ###### Week 3 Assignment

...﻿ Week 3 Assignment Create the Value: Market Segmentation Analysis and a Value Proposition: Daylesford Organic Farm Concept By: Margaret Nicholson Keller Gradate School Professor: Timothy Schauer Course: MKTG-522-20775 Marketing Management January 25, 2015 1. Brief Description of the Daylesford Organic Farm Concept: Daylesfor...

• ###### Week 3 Lab Assignment

...﻿CSEC 630 – Lab Assignment Q1. Which tool or technique from the above list would be most effective for a cryptanalyst to use to decipher a text encrypted with the Caesar cipher, and why? Floating frequency is the most effective tool used to decipher a text encrypted with the Caesar cipher. Floating frequency replace one letter of the pl...