Transport Economics Assignment

Task 1:

If you are the manager of a small transport company. The excel file contains data on the input and cost over the last 48 weeks:

Cost (Y) is the total cost per week
Labour (X1) is the number of man-hour used per week Fuel

(X2) is the number of litres of fuel used per week

You are required to use the Microsoft Excel package (the data analysis section) to finish the specific tasks below.

Estimate the regression model for Cost (Y) against Labour (X1) and Fuel (X2) and provide the output when answering the questions. If fuel and labour are the main variable inputs, interpret the estimate of the intercept. Comment on the estimates of the slope coefficients using both statistical and economic principles. What are the average amounts of labour and fuel used over the last 48 weeks? Based on historical records, labour used is expected to increase to 200 man-hour and fuel used to 1000 litres per week in the next month due to the festive seasons (Christmas & New year). What is expected cost under this scenario?

Task 2

(a) The following information is provided by the firm’s accounting department for the boat (with a capacity for up to 50 passengers in addition to crew) for sightseeing in vacation. All costs are shown in the following table:

If the price per passenger is $400, determine how many passengers are required to break even on each round trip. Determine the profit and profit-revenue ratio per round trip if the boat is filled to full capacity. Determine how many passengers are required to make a round-trip profit of $5,000.

(b) Now suppose a private company can alternatively choose to lease the boat for a 2-day conference for a total of $2,000. The boat will only be used for a short harbour cruise and for the rest of the conference as a floating hotel at the dock. If the vessel is leased in this way, the following fixed cost items apply.

If the demand for the normal sightseeing service (see part a) is 15 passengers per round trip, determine whether the boat cruise company should lease the boat to the conference organisers or continue to offer the normal sightseeing service.

(c) Now suppose the boat company realise their demand function is Q = 600 – 0.5*P. Also, its total cost of operation is TC = 2500 + 150Q. What is the new optimal price should the transportation firm charge according to marginal cost pricing method?

Task 3

(a) If you are the owner of a small transport company and wish to purchase a truck. The seller offers you three options:

pay$200,000nowandnothingmore
2. pay$100,000nowand$120,000infiveyears 3. paynothingnowand$240,000infiveyears

If the interest rate is 5%, which option will you choose? What is the fixed cost per month of keeping the truck for five years if you spread it out evenly over the five years?

(b) Refer to the following costs for a competitive firm selling a product for $200 per unit and has a fixed cost of $600.

What is the marginal cost of the 7th unit? How many units should the firm produce to maximise profits? What is the total cost of production at profit maximising output? What is the total revenue at the profit maximising output? What is the profit?