An Auto Company Produces Cars at Los Angeles and Detroit

question 83

Essay

An auto company produces cars at Los Angeles and Detroit, and has a warehouse in Atlanta. The company supplies cars to dealers in Dallas and Orlando. The costs of shipping a car between various points are shown in the table below, where "NA" means that a shipment is not allowed. Los Angeles can produce up to 1400 cars, and Detroit can produce up to 3200 cars. Dallas must receive 2800 cars, and Orlando must receive 1800 cars.
-(A) Determine how to minimize the cost of meeting demands at Dallas and Orlando.
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(B) Modify the answer to (A) if shipments between Los Angeles and Detroit are not allowed.

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Definitions:

Competitive Price-searcher Market

A market structure where firms have some control over the pricing of their products due to differentiation, but still face significant competition.

Market Demand

The overall volume of a good or service that consumers in a market are ready and able to buy across a range of prices.

ATC

Stands for Average Total Cost, which is the total cost of production (fixed plus variable costs) divided by the number of units produced.