You Are the Manager of a 24-Hour Copy Shop That

question 57

Essay

You are the manager of a 24-hour copy shop that is closed on Sundays. You lease a building for $2,000 per month and hire three employees who each work eight-hour shifts at a wage of $10.00 per hour. The markets for labor and office space are tight in your area. To acquire the lease and hire workers, you signed contracts requiring you to give 12 months advance notice before abandoning your lease or laying off workers (if you fail to comply, the contracts force you to fully compensate your landlord and workers for the income they otherwise would have earned over the 12-month period). Paper costs you $.02 per sheet. You currently sell 500,000 color copies per year at a price of $.10 per copy and 1,000,000 black-and-white copies per year at a price of $.05 per copy. Because of your high volume, each of your two copiers has a useful life of only one year. You just received a call from an employee who informs you that your color copier just broke down. The good news is that your black-and-white copier is brand-new; the bad news is that a new color copier will cost $30,000. Should you purchase a new color copier? Assume that customers who want color copies are unwilling to substitute black-and-white copies.

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Definitions:

Explanatory Variables

Variables in a statistical model that are manipulated or chosen to determine their effect on the response variables of interest.

Logistic Regression

A statistical method for predicting binary outcomes by modeling the probability of a variable based on its logarithm.

Logistic Regression Model

A statistical method used for analyzing a dataset in which there are one or more independent variables that determine an outcome. The outcome is measured with a dichotomous variable (where there are only two possible outcomes).

Indicator Variable

A variable, usually binary, used to represent the presence or absence of a categorical effect in regression models.