Bus 640 Wk 3

How Much Does It Cost

Mathew Macedo

BUS 640

Dr. Steve Mcqueen

December 5, 2015

How Much Does It Cost

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.

Show all of your calculations and processes. Describe your answer for each question in complete sentences, whenever it is necessary.

a. 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?

“fixed costs are defined as expenses that do not change as a function of the activity of a business, within the relevant period” (Investopedia, 2012). This means that some expenses will always be the same price, such as salary of workers, regardless of output, need to be paid or utility bills will always need to be paid. There are variances though, like tax or inflation that may cause something to fluctuate a little. Although these are still considered fixed, because they need to be paid regardless of the situation and the changes are exceptions to change not normal constant changes. Whereas the variable costs would be anything that can have changes or is constantly changing.

In this scenario, the fixed costs include the worker’s employees salaries, utilities, and rent, while the variable costs would be the oven and the pizza making costs. Delivery costs and other variables that were not mentioned above. The two expenses mentioned were the salaries and the oven expenses. The employees’ costs increase as more are added while the oven costs rise with age and use.

b. What number of workers appears to be most efficient in terms of pizza product per worker?

Identified answer by the color below.

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c. What number of workers appears to minimize the...