Case requirements step students through the case. In these notes, we provide solutions to each case requirement. In the final section, we conclude with comments.
Inflation impacts the cost function. Students must use the “Inflation Adjustment” data provided to put cost data from 2013 to 2020 into 2021 dollars. Many instructors are familiar with consumer price data available from the U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics (BLS) data we obtained were monthly with a base period (e.g., 1982–1984) before our timeframe, and feeling students would struggle with joining monthly data, we produced a table with annual price adjustment factors. Students simply need to divide each of the cost observations by year using the appropriate factor from Table 1 in the case (e.g., 0.867 for observations in 2015). Although this may not be optimal, it satisfied our objective of making students aware of the need to adjust...
