CONSULTING PROJECT Production Decisions at Harding Silicon Enterprises, Inc. Harding Silicon Enterprises, Inc. produces less than 1% of the world's...

CONSULTING PROJECTProduction Decisions at Harding Silicon Enterprises, Inc.Harding Silicon Enterprises, Inc. produces less than 1% of the world’s supply of 32 MB random accessmemory (RAM) chips for electronic devices. HSE’s RAM chips perform according to globally acceptedperformance standards for this type of silicon chip (i.e., its chips are just like every other producers’chips). HSE has hired you to do undertake three tasks:1. Perform a statistical analysis of its short-run production costs to estimate its total variable costfunction, average variable cost function, and marginal cost function. HSE believes its total fixedcosts will be $6,500 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, andb. The price of 32 MB RAM chips falls to $35 per chip.3. Determine the price below which HSE should shut down operations in the short run.HSE 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 CPIrose 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 (someare fixed costs and some are variable costs). HINT: Remember, cost items are part of fixed costs if thecosts do not vary with output, even though fixed cost items may vary over time.MonthMonthlyproduction offinished productBusinesslicenses& feesInsurancepremiumsBuildingleasepaymentMaterialsexpenses TelephoneEnergyexpensesWageexpenseNov-98 875 0 0 3570 9690 945 7230 12250Dec-98 670 0 0 3570 6700 945 5115 8995Jan-99 1675 6000 2200 3570 16295 945 12884 23106Feb-99 1155 0 0 3570 11285 945 9240 15225Mar-99 1845 0 0 3570 16550 945 14220 24530Apr-99 1650 0 0 3570 16230 945 12700 21600May-99 1955 0 0 3570 19626 945 15640 27484Jun-99 2845 0 0 3570 27410 945 22760 39830Jul-99 2265 0 2200 3570 20526 945 17244 31225Aug-99 3470 0 0 3570 34176 830 25760 48564Sep-99 3665 0 0 3570 36726 830 28720 50094Oct-99 3750 0 0 3570 42576 830 32000 54474Nov-99 4595 0 0 3570 48226 830 37260 66414Dec-99 4060 0 0 3570 41095 830 33155 57840Jan-00 3575 7200 2450 4200 34550 830 27400 50050Feb-00 4380 0 0 4200 41800 830 34460 61320Mar-00 5575 0 0 4200 81750 830 54600 82150Apr-00 7870 0 0 4200 92360 830 102960 130180May-00 6750 0 0 4200 89576 830 70000 109774Cost Items for Harding Silicon Enterprises, Inc.1. 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 ofHSE’s future total fixed costs ($6,500 per month).] Print out the 19 months of data onoutput (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 thescatter diagram suggest a functional form for TVC? Explain briefly.c. Plot a scatter diagram of AVC on the vertical axis and Q on the horizontal axis. Does thescatter diagram suggest a functional form for AVC? Explain briefly.d. Estimate a quadratic AVC function. Present the estimated equation and evaluate theregression results (i.e., discuss the algebraic signs of the parameter estimates, thesignificance levels, and the R2).e. Evaluate the results of your regression equation in part a. Specifically discuss algebraicsigns of parameters, statistical significance, and goodness of fit.2. a. How many chips should be produced (monthly) if world chip prices are $62 per chip?Forecast the HSE’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.3. At what price should Harding shut down and produce no chips in the short run?