Managerial Economics

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)
 
1

2

3

4

5

6

7

8
 5

12

21

32

40

46

51

50
 

 

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?

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 transportation assuming that all drivers are paid the same salary?

 

1.    2.   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 novelty item as shown in the following table. Sales have grown over this period with relatively few shocks due to uncontrollable weather, political and sporting events. This online retailer carries no inventories; when it receives a pre-paid on-line order from a customer, it simply buys the product from a supplier and ships it out to the customer. 

Sales = Output
 TVC ($)
 
102,813 
 
176,163 
 
196,121 
 
222,885 
 
226,356 
 
296,416 
 
378,446 
 
450,666 
 
579,696 
 
607,082 
 
624,680 
 
636,133 
 

 
 201,953 
 
340,608 
 
377,940 
 
432,863 
 
441,714 
 
629,267 
 
867,596 
 
1,103,807 
 
1,701,125 
 
1,917,861 
 
2,195,352 
 
2,479,195 
 

 
 

a.       Using regression analysis, find an equation that best fits the data to represent the TVC 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 the 95% confidence interval for your estimate.