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# Fixed and Variable Inputs in the Transportation Business

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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.

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?

#### Solution Preview

On Fixed and Variable Inputs:

Fixed Input
-Salary of drivers

Variable Inputs
-Fuel cost for the vehicles

On ranges of increasing, constant and/or diminishing returns to the number of drivers employed:
The output per driver was computed using the formula, Output per Driver = Total Cargo Transport / Drivers ...

#### Solution Summary

The solution describes and differentiates fixed and variable Inputs, and its roles in the determination of marginal cost in a trucking company with large rig transportation business in Texas.

\$2.19

## Economies of Scope/Logistics/Break Even

9. (a) What is the meaning of economies of scope? How do they differ from economies of scale? (b) What do learning curves show? How do they differ from economies of scale? What is the usefulness of learning curves as a managerial tool? What is the reason for rising international trade in inputs and the use of foreign trade in inputs and the use of foreign labor?

15. (a) What is logistics? (b) What are the forces that are likely to lead to the rapid spread of logistic management in the future?

Problem

3. Airway express has an evening flight from Los Angeles to New York with an average of 80 passengers and return flight the next afternoon with an average of 50 passengers. The plane makes no other trip. The charge for the plane remaining in New York overnight is \$1,200 and would be zero in Los Angeles. The airline is contemplating eliminating the night flight out of Los Angeles and replacing it with a morning flight. The estimated number of passengers is 70 in the morning flight and 50 in the return afternoon flight. The one-way ticket for any flight is \$200. The operating cost of the plane is for each flight is \$11,000. The fix costs for the plane are \$3,000 per day whether it flies or not. (a) Should the airline replace its night flight from Los Angeles with a morning flight? (b) Should the airline remain in business?

3(b) is asking whether Airway Express should continue providing the
flight between Los Angeles and New York.

4. Electric utility companies usually operate their most modern and efficient equipment continuously (i.e., round the clock) and use their older and less efficient equipment only to meet period of peak electricity demand. (a) What does this imply for the short-run marginal cost of these firms? (b) Why do these firms not replace all their older equipment with new equipment in the long-run?

11. The Goldberg-Scheinman Publishing Company is publishing a new managerial economic text for which it has estimated the following total fixed and average variable costs.

Total fix costs: \$10,000

Copy editing \$70,000

Selling and promotion \$20,000

Total fix costs \$100,000

Average variable costs: \$6

Printing and binding

Sale commissions 1

Books discounts 7

Author's royalties 4

Average variable costs \$20

Project selling price \$30

(a) Determine the breakeven output and total sales revenues and (b) determine the output that would generate a total profit of \$60,000 and the total sales revenues at that output level; draw the cost-volume-profit chart.

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