# Production Cost Analysis and Estimation

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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.

Workers employed

Qty of pizzas produced per week

1

0

2

75

3

180

4

360

5

600

6

900

7

1140

8

1260

9

1360

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.

• 6 years ago
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