Assignment
1. You are a fleet manager for a metro-area company. You've recently discovered that ten of your company's vehicles require repairs which will cost an estimated $2,000 each. In considering whether to repair or replace your vehicles, your college roommate suddenly calls one day. After relaying your predicament, your roommate tells you that you need to consider all of the past repairs that those vehicles have cost the company, and pushes you to lean in favor of repair rather than replace. How would you assess your roommate's advice?
2. You have collected the following data on output and total variable costs:
|
Q
|
TVC ($)
|
|
1
|
60
|
|
2
|
107
|
|
3
|
145
|
|
4
|
178
|
|
5
|
213
|
|
6
|
253
|
|
7
|
304
|
|
8
|
370
|
|
9
|
455
|
|
10
|
566
|
a. Identify the range of output exhibiting increasing returns (increasing MP), and the range exhibiting diminishing returns (decreasing MP).
b. Current fixed costs for the company equal $75. Draw two graphs, both with Q on the horizontal axis: one graph shows TVC and TC, and the other shows AVC, AC, and MC.
c. Suppose that the government imposes a $15 property tax hike on all businesses; how will that affect your two graphs; i.e., which cost curves will be affected and how?
d. Suppose instead that the government considers your production process to be polluting, and imposes a $4 tax per unit produced. How does this tax increase compare to the property tax increase, in terms of the effect on your company's cost curves?
e. Your boss says "either of these taxes is going to force us to change our production levels." Given what you know about optimization analysis, how would you respond?
3. You are HR director for a growing law firm, which currently has need of writing 24 legal briefs every hour. Each of your company's attorneys can write on average four briefs per hour. You are considering hiring four paralegals to shoulder the load; each paralegal is a bit slower than the attorneys and can write on average only three briefs per hour. You scan the current wages in the Shreveport-Bossier area and notice that the attorneys in your company earn the local occupational median wage of $41.26 per hour, but that the prospective four paralegals will likely want to get paid their local occupational median wage of $26.06 per hour.
a. Would your company save money in the writing of the 24 legal briefs by hiring the four new paralegals and firing some attorneys?
b. The local Shreveport-Bossier Paralegal Union has observed that the Bureau of Labor Statistics projects that employment of paralegals over the next decade will rise considerably faster than the employment of lawyer, and suggests that all paralegals now push for wages of $26.50 per hour.Feeling like their future is safe, most paralegals now reduce the stress in their lives by only writing on average two briefs per hour. If the other values remain the same (attorney wage and writing speed, need for 24 briefs per hour), would the company save money in the writing of the 24 legal briefs by hiring the four new paralegals and firing some attorneys?
4. You work for a company that is being accused of monopoly behavior, given its large size. Comparisons are made to the industry standard, where each establishment has on average about 16.2 employees. Your company is bigger than that, but you want to provide evidence against the monopoly charges.
a. You've collected data at different times in your company's history, when you had different amounts of capital.
In 2003, SRATC = 7Q2- 50Q + 200
In 2008, SRATC =3Q2-75Q+600
In 2014, SRATC =4.5Q2- 72Q+335
Plot these three different SRATC curves (have Q go from 0 to 20), and discuss how (and possibly why) your company has changed since 2003 in terms of its size.
b. Make another column labeled "LRATC" that includes three points: 2003's SRATC when Q = 2; 2014's SRATC when Q = 8, and 2008's SRATC when Q = 17. Plot these three points on your graph (be sure to show, don't hide, the dots) and add a 2nd-degree polynomial trendline to represent your company's LRATC.
c. In a more competitive industry with smaller firms, typical LRATC curves follow LRATC = 6Q2 -48Q + 147. Using all available information in this question, present an argument that could be used to justify your company's size.