# Managerial Econ

posted by Ed

If you owned your own small hot dog shop and all you sell is hot dogs and root beer how would you go about estimating your production function and your cost function?

I would use the general form of a production function where Q=f(H,R) where both H (hotdogs) and R (rootbeer) are variable inputs in the long-run. Q=output, f=function of,
H=hotdogs, and R=rootbeer. This is the recipe to figure out how much input, in what combinations can hotdogs and rootbeer be mixed to produce maximum output and minimize cost. In the short-run either hotdogs or rootbeer usage would be fixed that
formula would be if rootbeer is fixed Q=f(H,R) = g(H). The exact mathematical form of this production function is frequently referred to as the estimable form of the production
function that is using regression analysis. Production function is the relationship of outputs to inputs is non-monetary, that is , a production relates physical inputs to physical outputs, and prices and costs are not considered.

Regression analysis can also be used to estimate cost functions. Cost depends on the
level of output being produced, as well as the prices of inputs used in production. The
math equation TC = TC(Q:h,r) where h denotes the price of a unit of hotdog and r the
price of a unit of rootbeer.

To look at estimating production function I may keep track of how many hotdogs and
rootbeers are sold each day and in what combination. I may decide to keep the number
of hotdogs constant and see what happens to rootbeers and what ulitmately occurs to
output. If I hold hotdogs constant, do I sell more or less rootbeers? If I sell more my
output goes up, if I sell less then my output goes down. Based on my findings over time,
I would be able to estimate the combination of hotdogs and rootbeers mixed to produce
the maximum output.

Now in relation to estimating cost function I am going to change my prices on rootbeer because the price has increased to make rootbeer and keep hotdog prices constant to see what occurs over time. Does the output increase because my costs have or does the output decrease. I may later decide to change the prices on
hotdogs because they are more costly to produce and keep the prices on rootbeer constant to see what occurs over time. I may look at my competition to see what they're charging and what their costs
are. Based on these observations I would be able to better estimate future sales, costs and prices. Based on the information I learn I would be able to minimize cost and maximize output.

Now, not sure if that all sounds right?
Thanks,
EY

IT sounds complicated. Why are you interested in minmizing cost, and maximizing output? It is easy to minimize cost...dont buy any supplies. An to maximize output doesn't make sense to me, one can maximize output by paying folks to take the hotdogs.

I would try to maximize profit, or at least think along those lines.

I agree with the third paragraph, you need some data to estimate.
Cost will be the fixed costs, plus cost of goods, plus waste. You will have waste at the end of the day, most likely. You need some estiamte of the number of hot dogs you will sell, and the rootbeer dispensed. The question asked how will you estimate the production function and the cost function. You have a lot of words that describe other things, but I think you want to try to answer the question: how will you fill out the order blank each day for supplies? How much will you sell? How will you determine the pricing? Hot dog vendors do this all over the world each day. I suspect they guage (measure) customer demand very closely. But it does seem odd to me to try to minimize cost, or maximize output...profit is really a nice measure of efforts, and it does not always mean reducing costs, nor maximizing output.

## Similar Questions

1. ### math

1. Hot dogs come 10 to a package, and hot dog buns come 8 to a package. What is the smallest number of packages of each that Phillip could buy so that there are no leftover hot dogs or buns?
2. ### Math

Jack has 99 hot dogs and 261 hot dog buns. He wants to put the same number of hot dogs and hot dog buns on each tray. What is the greatest number of trays Jack can use to accomplish this?
3. ### Economics

Ashley is currently consuming 10 hot dogs and 8 hamburgers a week. The last hot dog she consumed yielded 20utils while the last hamburger she ate gave her 25utils. If hot dogs cost \$2 and hamburgers cost \$2.50, is Ashley consuming …
4. ### math

A hot dog vendor at the zoo recorded the average temperature and the average number of hot dogs she sold. The equation for the line of best fit for this situation is shown below. Based on the line of best fit, complete the following …
5. ### maths: Lowest common multiple

Hot dogs are sold in packages of 12 while hot dog buns are sold in packages of 8. Help me! Don't know what to do! (a) How many packs of each should you buy to have the same number of hot dogs and hot dog buns?
6. ### Algebra

at a baseball concession stand 3 hot dogs and 2 cups of soda together cost 13.50. two hot dogs and 1 cup.of soda together costs 8 select all statements that are true about this situation. A. Each hot dog costs 2.50 B. Each cup of soda …
7. ### Math

A hot dog cart at the entrance of the Stadium sells hot dogs (\$3.50) and hamburger (\$5.25) for a total of \$1,225.00. If it sells twice as many hot dogs as hamburgers, how many of each did it sell?
8. ### Educational technology and online learning

Which of the following sets is data would be represented best in a bar graph?
9. ### Math

A company runs food service concessions for sporting events throughout the country. Their marketing research department chose a particular football stadium to test market a new jumbo hot dog. It was found that the demand for the new …
10. ### tech AGAIN

3) Which of the following sets of data would be represented best in a bar graph?

More Similar Questions