The owner of a small car rental service is trying to decide on the appropriate n

Question

The owner of a small car rental service is trying to decide on the appropriate numbers of vehicles and mechanics to use in the business for the current level of operations. He recognizes that his choice represents a trade-off between the two resources. His past experience indicates that this tradeoff is as follows: If the annual leasing cost per vehicle is $6000 & the annual salary per mechanic is $25,000. What combination of vehicles & mechanics should he employ? An American company that sells consumer electronics products has manufacturing facilities in Mexico, Taiwan, and Canada. The average hourly wage, output, and annual overhead cost for each site are as follows: If we use output per person as a proxy for marginal product, what is output/wage rate for each country? Which location has the highest MP per dollar? Mexico Taiwan Canada Cannot determine with the information available.

Explanation / Answer

Question 16:

In this problem, owner of a small car is hiring vehicle and mechanics. If they hire more vehicles, then number of mechanics should be reduced. Different combinations of vahicle and mechanics are given. Ascertain total cost of each combination. For vahicle estimate leasing cost and for mechanics estimate wages. Then add lease cost and salary to get total cost. It is shown in the table below:

From the above table you can observe that minimum total cost is $545,000. So optimal combination is 70 vehiclas and 5 mechanics.

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Problem 17: In this problem an US company has three production center at Mexico, Taiwan and Canada. Hourly wage rate and output per worker is given. You have to ascertain output to wage rate ratio. It will indicate marginal product per dollar. It is shown below:

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18. Highest marginal product per dollar is 6.67. It is observed in Mexico.

Vehicle Mechanics Leasing cost Salary Total 100 2.5 100x6,000=$600,000 2.5x25,000=$62,500 $662,500 70 5.0 70x6,000=$420,000 5x25,000=125,000 $545,000 50 10 50x6,000=$300,000 10x25,000=250,000 $550,000 40 15 40x6,000=$240,000 15x25,000=$375,000 $615,000 35 25 35x6,000=$210,000 25x25,000=$625,000 $835,000 32 35 32x6,000=$192,000 35x25,000=$875,000 $1,067,000

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