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. 

Cite This Document

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...

    Read More
  • 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...

    Read More
  • MAT221 Week 3 Assignment

    ...a factor of 15 from the numerator and denominator. c≤200−12m/15 Cancel the common factor of 15 in 3000/15. Reduce the expression 3000/15 by removing a factor of 15 from the numerator and denominator. c≤200−4m/5 Cancel the common factor of 3 in −12m/15 since −12m/15=(−4m⋅3)/(5⋅3). Reduce the expression −12m/15 by removing ...

    Read More
  • Week 3 Individual Assignment

    ... Organizational Management and Operations CJay Williams CJA/484 February 23, 2015 Jaime Castro Organizational Management and Operations It is important to understand how each level of policing operates the same in certain aspects and how different they are in others. All levels share the same moral and professional obligation...

    Read More
  • Week 3 Individual Assignment

    ...technology are highly instrumental in determining the best approach and care for patients. With medicine the goal is to heal an individual and as long as that stays the primary purpose several other antibiotics or even cures could be developed. References Anitbiotic-resistant Definition available at http://www.medicinenet.com/script/main/art.as...

    Read More
  • Week 3 Assignment Hosp

    ...Week 3 assignment Chapter 7 Internet Exercise Expedia : Expedia is an online travel site where you can book flights, vacation packages, hotels, cars, cruises and activities for a vacation. Expedia allows you conduct less searched to find more resources. Expedia's search features on the homepage are easy to use and prompt you for the most im...

    Read More
  • WEEK 3 ASSIGNMENT

    ...Week Three Exercise Assignment 1. Specific identification method. Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows. Painting Cost 1/2 Beginning inventory Woods $21,000 4/19 Purchase Suns...

    Read More
  • Hrm593 Week 3 Assignment

    ...and why? 1. Create a work environment where it is clear that harassment will not be tolerated. By creating a strong sexual harassment policy that conveys that sexual harassment will not be tolerated and the potential ramifications if found guilty that will help ensure that employees understand where the organization stands on harassment...

    Read More

Discover the Best Free Essays on StudyMode

Conquer writer's block once and for all.

High Quality Essays

Our library contains thousands of carefully selected free research papers and essays.

Popular Topics

No matter the topic you're researching, chances are we have it covered.