BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON,
D.C. 20268-0001
POSTAL RATE AND FEE CHANGES, 1997
RESPONSE
WITNESS
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OF UNITED STATES POSTAL SERVICE
PANZAR TO INTERROGATORIES
OF
UNITED PARCEL SERVICE
(UPS/USPS-T1 l-l-2)
The United States Postal Service hereby provides responses
to the following
interrogatories
of United Parcel Service:
of witness
UPS/USP:S-Tl
Panzar
l-l-2,
tiled on August 4. 1997.
Each interrogatory
is stated verbatim and is followed by the response.
Respectfully
submitted,
UNITED STATES POSTAL
By its attorneys:
Daniel J. Foucheaux, Jr.
Chief Counsel, Ratemaking
Richard T. Cooper
475 L’Enfant Plaza West, SW.
Washington, D.C. 20260-l 137
(202) 268-2993; Fax -5402
August 18, 1997
SERVICE
RESPONSEOF POSTAL SERVICEWITNESS PANZAR
UPS/USPS-T1l-l,, Pleaseconfirm that the costcurve “C” is missin: from Figure 1. on
22 of your direct testimony. Plcascprovide a Figure 1 that includesthe cost cwc
‘C. )’
page
ANSWER Not confirmed. The componentcostcurvercfcrcd to in the text is not missing
from the diagram. It is the cun;edline beginningat point A on the vertical axis. The label
of the curvewas inadverrantlyomittedor failed to print.
‘Thefigure in the testimonyalreadyincludesthe requestedcomponentcostcurve. ‘The
fi:ure klow addstbc missin: label.
Component Costs
Driver Level
RESPONSEOF POSTAL SERVICEWITKESS I’.i\NZAR
UPS/USPS-T1l-2. Pleaseprovide a rcfertncc for-or explainthe derivation of the equation
on lint 16 of page26 of your direct testimony.
ANSWER: Sincethe formula is merelyillustrative,I will deriveit in the conrextof tie
simplified cxamplcusedin Figure2 in my direct tcstimon):.That is. the lcvcl of the
componentcostdriver LJ, requiredfor eachmail subclassj is directly [email protected]
to me
volume of that subclass,Let D denotethe total lcvcl drivel-activity mquircdI:Oscwc the
volumesof all mail subclasses,Then, by assumption,we alsohaveD,=qD. Under the
constantelasticity assumptionstatedin my direct testimony.componentcostsare given by
C-D”.
and volume variablecostsfor suhclassj by
= D,aD”-’
=
aa,D".
Componentincrementalcostsfor subclassj aredefinedasthe addedcostof providing the
additionaldriver dctivily requiredto wvr its mail rolumc, giuru rhcmdil wl,umc5of thr
other subclasses(and the resultinglevel of driver activity). That is.
Dividing componentincrcmcntalcostfor subclassj by componentvolume variablecost for
that subclassyields the formulain my directtestimony:
‘,,3 [l-(l-aj)a]
v, auj
DEClARATlON
I, John C. Panzar. declare under penalty of perjury that the foregoing
are true and correct, to the best of my knowledge,
Dated:
kl
N ,3&
Information,
and belief.
answers
CERTIFICATE
OF SERVICE
I hereby certify that I have this day served the foregoing
participants
of record in this proceeding
of Practice.
475 L’Enfant Plaza West, SW.
Washington, D.C. 20260-l 137
August 18, 1997
in accordance
doc:ument upon all
with section 12 of the Rules