A summer intern for Proctor & Gamble developed the following cost graph based on

Question

A summer intern for Proctor & Gamble developed the following cost graph based on the different cost structures of private, contract, and public warehousing, but forgot to label the graph. Based on our class discussions, can you come up with the most likely labels? A' Cost Quantity Q* O Line A-A' represents private warehousing-depicting all variable costs-similar to a MAKE cost curve.. Q represents the optimal number of warehouses in this graph. Line Segment A-B and A-C represent the variable costs (indirect costs) associated with each respective warehouse type. O Line B-B, represents contracted warehousing-depicting a mixture of variable and fixed costs. Line C-C represents public warehousing - depicting mostly fixed costs with some variable costs similar to a BUY cost curve.

Explanation / Answer

Ans.. Line B-B` represents contracted warehousing.

Here A-A` represents the public warehousing where the cost is relative to the quantity. C-C` represents the private warehousing cost where A-C is the fixed cost associated with it where the cost considerable with increase in quantity.

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