# Production Cost Analysis and Estimation Applied Problems

**Question description**

Please answer all parts of questions!

BUS640_Week_Three_Problem_1_Chart.bmp

Please complete the following two applied problems:

**Problem 1:**

William is the owner of a small pizza shop and is thinking of increasing
products and lowering costs. William’s pizza shop owns four ovens and
the cost of the four ovens is $1,000. Each worker is paid $500 per week.

Show all of your calculations and processes. Describe your answer for
each question in complete sentences, whenever it is necessary.

- 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?
- What number of workers appears to be most efficient in terms of pizza product per worker?
- What number of workers appears to minimize the marginal cost of pizza production assuming that each pizza worker is paid $500 per week?
- Why would marginal productivity decline when you hire more workers in the short run after a certain level?
- 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.

**Problem 2:**The Paradise Shoes Company has estimated its weekly TVC function from data collected over the past several months, as TVC = 3450 + 20Q + 0.008Q2 where TVC represents the total variable cost and Q represents pairs of shoes produced per week. And its demand equation is Q = 4100 – 25P. The company is currently producing 1,000 pairs of shoes weekly and is considering expanding its output to 1,200 pairs of shoes weekly. To do this, it will have to lease another shoe-making machine ($2,000 per week fixed payment until the lease period ends).

Show all of your calculations and processes. Describe your answer for each item below in complete sentences, whenever it is necessary.

- Describe and derive an expression for the marginal cost (MC) curve.
- Describe and estimate the incremental costs of the extra 200 pairs per week (from 1,000 pairs to 1,200 pairs of shoes).
- What are the profit-maximizing price and output levels for Paradise Shoes? Describe and calculate the profit-maximizing price and output.
- 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.

## Tutor Answer

## 8 Reviews

**Quality**

**Communication**

**On Time**

**Value**

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors