Managerial Econ

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.

  1. 👍 0
  2. 👎 0
  3. 👁 97
asked by Ed

Respond to this Question

First Name

Your Response

Similar Questions

  1. 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

    asked by Bob on January 24, 2017
  2. 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?

    asked by Jennifer on September 3, 2016
  3. calc

    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

    asked by Dan on April 6, 2015
  4. math

    Mr. Kelly bought 8 dozen hot dogs for the third grade picnic. His pet dog broke into the groceries and ate 14 dogs. If each picnic guest eats one hot dog, how many people can still have a hot dog?

    asked by Renee on December 10, 2018
  5. Algebra

    On a given day, a vendor made less than $40 from hot dog and pretzel sales. The inequality graphed below represents the number of hot dogs (x) and pretzels (y) he could have sold and made less than $40. Which combination of hot

    asked by Chloe on January 20, 2017
  6. Educational technology and online learning

    Which of the following sets is data would be represented best in a bar graph? A. the number of hot dogs consumed by the people entered in a hot dog eating contests B. The percentage of hot dogs consumed my women? C.the number of

    asked by Cici on December 6, 2016
  7. tech AGAIN

    3) Which of the following sets of data would be represented best in a bar graph? A.the number of hot dogs consumed by the people entered in a hot dog eating contest b. the percentage of hot dogs consumed by women c. the number of

    asked by connxus kid on December 14, 2017
  8. 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

    asked by debby on February 28, 2014
  9. Math

    If Greg's grill has a sale on hot dogs 4 for $3 and each hot dog costs the same amount of money how much is 1 hot dog

    asked by Madison on October 25, 2016
  10. 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?

    asked by Hanna on February 27, 2010
  11. 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? (b) How many hot

    asked by liam on December 3, 2015

More Similar Questions