(Answered)-This is graduate-level case study and please update excel with

This is graduate-level case study and please update excel with the answer

CASE #1

 

(BE CAREFUL!!!DATA SET IS DIFFERENT THAN CLASS EXAMPLES!!!)

 

ABC Enterprises, Inc. produces less than 1% of the world?s supply of 32 MB random access memory

 

(RAM) chips for electronic devices. ABC?s RAM chips perform according to globally accepted

 

performance standards for this type of silicon chip (i.e., its chips are just like every other producers?

 

chips). ABC has hired you to do undertake three tasks:

 

1.

 

 

Perform a statistical analysis of its short-run production costs to estimate its total variable cost

 

function, average variable cost function, and marginal cost function. ABC believes its total fixed

 

costs will be $9,338 per month, so you do not need to estimate TFC.

 

2.

 

 

Recommend production levels and forecast profits for two chip price scenarios:

 

 

a.

 

 

The price of 32 MB RAM chips reaches $62 per chip, and

 

 

b.

 

 

The price of 32 MB RAM chips falls to $35 per chip.

 

 

3.

 

 

Determine the price below which ABC should shut down operations in the short run.

 

 

ABC provides you with the following cost and output data for the past 19 months. Over this time period,

 

inflation has been so low that you do not need to adjust the cost data for the effects of inflation (the CPI

 

rose only 0.4% over the 19 month time period). Monthly output of chips is given in the second column,

 

which is titled ?Monthly production of finished product.? Costs are reported in seven categories (some

 

are fixed costs and some are variable costs). HINT: Remember, cost items are part of fixed costs if the

 

costs do not vary with output, even though fixed cost items may vary over time.

 

 

Cost Items for ABC Enterprises, Inc.

 

Month

 

Nov-98

 

Dec-98

 

Jan-99

 

Feb-99

 

Mar-99

 

Apr-99

 

May-99

 

Jun-99

 

Jul-99

 

Aug-99

 

Sep-99

 

Oct-99

 

Nov-99

 

Dec-99

 

Jan-00

 

Feb-00

 

Mar-00

 

Apr-00

 

May-00

 

 

Building

 

Monthly Business

 

lease Materials

 

Energy

 

production of licenses Insurance

 

& fees premiums payment expenses Telephone expenses

 

finished product

 

1125

 

0

 

0

 

3770

 

9590

 

975

 

7130

 

920

 

0

 

0

 

6600

 

975

 

5015

 

3770

 

1925

 

16195

 

12784

 

6000

 

2200

 

975

 

3770

 

1405

 

0

 

0

 

11185

 

975

 

9140

 

3770

 

2095

 

16450

 

14120

 

0

 

0

 

975

 

3770

 

1900

 

0

 

0

 

16130

 

975

 

12600

 

3770

 

2205

 

19526

 

15540

 

0

 

0

 

975

 

3770

 

3095

 

0

 

0

 

27310

 

975

 

22660

 

3770

 

2515

 

20426

 

17144

 

0

 

2200

 

975

 

3770

 

3720

 

0

 

0

 

34076

 

850

 

25660

 

3770

 

3915

 

36626

 

28620

 

0

 

0

 

850

 

3770

 

4000

 

0

 

0

 

42476

 

850

 

31900

 

3770

 

4845

 

48126

 

37160

 

0

 

0

 

850

 

3770

 

4310

 

0

 

0

 

40995

 

850

 

33055

 

3770

 

3825

 

34450

 

27300

 

7200

 

2450

 

4400

 

850

 

4630

 

0

 

0

 

4400

 

41700

 

850

 

34360

 

5825

 

81650

 

54500

 

0

 

0

 

4400

 

850

 

8120

 

0

 

0

 

4400

 

92260

 

850

 

102860

 

7000

 

89476

 

69900

 

0

 

0

 

4400

 

850

 

 

Wage

 

expense

 

11950

 

8695

 

22806

 

14925

 

24230

 

21300

 

27184

 

39530

 

30925

 

48264

 

49794

 

54174

 

66114

 

57540

 

49750

 

61020

 

81850

 

129880

 

109474

 

 

1.

 

 

2.

 

 

3.

 

 

a. Compute total variable cost (TVC) by adding the appropriate columns of cost items.

 

Compute average variable cost (AVC). [Remember that you are given an estimate of

 

ABC?s future total fixed costs ($9,338 per month).] Print out the 19 months of data on

 

output (Q) and total variable cost (TVC) and average variable cost (AVC).

 

b.

 

 

Plot a scatter diagram of TVC on the vertical axis and Q on the horizontal axis. Does the

 

scatter diagram suggest a functional form for TVC? (try to fit a trend line) Explain

 

briefly.

 

 

c.

 

 

Plot a scatter diagram of AVC on the vertical axis and Q on the horizontal axis. Does the

 

scatter diagram suggest a functional form for AVC? (Try to fit a trend line) Explain

 

briefly.

 

 

d.

 

 

Estimate a quadratic AVC function. Present the estimated equation and evaluate the

 

regression results (i.e., discuss the algebraic signs of the parameter estimates, the

 

2

 

significance levels, and the R ).

 

 

e.

 

 

Evaluate the results of your regression equation in part a. Specifically discuss algebraic

 

signs of parameters, statistical significance, and goodness of fit.

 

 

a.

 

 

How many chips should be produced (monthly) if world chip prices are $62 per chip?

 

Forecast the ABC?s profit at this output level.

 

 

b.

 

 

How many chips should be produced (monthly) if world chip prices are $35 per chip?

 

Forecast the profit at this output level.

 

 

At what price should ABC shut down and produce no chips in the short run?

 

 



 

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