ECO – Production Cost Analysis and Estimation Applied Problems

Production Cost Analysis and Estimation Applied ProblemsPlease, complete the following 3 applied problems in a Word or Excel document. Show all yourcalculations and explain your results. Submit your assignment in the drop box by using theAssignment Submission button.1. Jennifer Trucking Company operates a large rig transportation business in Texas thattransports locally grown vegetables to San Diego, California. The company owns 5 large rigs andhires local drivers paid fixed salaries monthly, regardless of the number of trips or tons of cargothat each driver transports each month. The below table presents details about the number ofdrivers and the total cargo transported by the company at different staff levels.Drivers employedTotal Cargo Transported (tons)15212321432540646751850a.Which inputs are fixed and which are variable in the production function of JenniferTrucking Company? Over what ranges do there appear to be increasing, constantand/or diminishing returns to the number of drivers employed?b. What number of drivers appears to be most efficient in terms of output per driver?c. What number of drivers appears to minimize the marginal cost of transportationassuming that all drivers are paid the same salary?1. 2. The Palms Dry Cleaning Shop in Fort Lauderdale, Florida, faces a highly seasonal demand forits services, as the snow-birds retirees flock to Florida in mid-fall to enjoy the mild winterweather and then return to their main homes in mid-spring. Given this seasonality, Palms tries tokeep the overhead costs as low as possible and therefore, often uses seasonal contracted labor toman its operations. The following table shows the labor costs in each month of operation over thepast 12 months as well as the total number of garments that were dry-cleaned in each month.Palms pays fixed wages per hour to each employee, and we can assume that the costs of othervariable inputs (such as chemicals, electricity, etc) have remained constant.MonthJuneJulyAugustSeptemberOctoberTVC ($)35,49042,47048,98052,53037,480Garments cleaned4,5005,5756,3006,5255,325NovemberDecemberJanuaryFebruaryMarchAprilMay33,51031,85027,86022,16019,52025,9604,0502,8502,4501,5259251,92532,9803,500a. Derive average variable cost (AVC) data from the data in this table.b. Use gradient analysis to provide an estimate of eleven data points that seem torepresent the MC curve over this range of outputs. Plot these data points and sketch inestimated MC and AVC curves that seem to best fit these data points.c. Suppose that demand is estimated to move from its present (May) level of 3,500units to 4,000 units next month (June). What is the incremental cost of meeting thisdemand?d. Assuming that Palms price to dry clean a garment has been constant at $15 over thepast year, and will remain at that level, what contribution to overheads and profit canit expect in June?2. 3. Over the past 12 months the Four Winds Novelty Company firm has recorded its internet sales(equals monthly output levels) and its monthly total variable costs (TVC) for a particular noveltyitem as shown in the following table. Sales have grown over this period with relatively fewshocks due to uncontrollable weather, political and sporting events. This online retailer carries noinventories; when it receives a pre-paid on-line order from a customer, it simply buys the productfrom a supplier and ships it out to the customer.Sales = OutputTVC ($)102,813201,953176,163340,608196,121377,940222,885432,863226,356441,714296,416629,267378,446867,596450,6661,103,807579,6961,701,125607,0821,917,861624,6802,195,352636,1332,479,195a.Using regression analysis, find an equation that best fits the data to represent theTVC function.b. At what sales/output level will marginal costs (MC) reach a minimum?c. Estimate the value of TVC for sales/output level 250,000 units, and calculate the95% confidence interval for your estimate.