A delivery company is considering adding another vehicle to its delivery fleet;
ID: 1217432 • Letter: A
Question
A delivery company is considering adding another vehicle to its delivery fleet; each vehicle is rented for $150 per day. Assume that the additional vehicle would be capable of delivering 1750 packages per day and that each package that is delivered brings in $0.15 in revenue. Also assume that adding the delivery vehicle would not affect any other costs.
Instructions: Round your answers to 1 decimal place.
a. What are the MRP and MRC?
MRP = $. _______
MRC = $. ________
Should the firm add this delivery vehicle? (Click to select)Yes No.
b. Now suppose that the cost of renting a vehicle doubles to $300 per day. What are the MRP and MRC?
MRP = $. ____
MRC = $. _____
Should the firm add a delivery vehicle under these circumstances? (Click to select)Yes No.
c. Next suppose that the cost of renting a vehicle falls back down to $150 per day but, due to extremely congested freeways, an additional vehicle would only be able to deliver 750 packages per day. What are the MRP and MRC in this situation?
MRP = $. _____
MRC = $. ________
Would adding a vehicle under these circumstances increase the firm’s profits? (Click to select)Yes No.
Explanation / Answer
a.
MRP = (Revenue change) / (Additional input)
= (1,750 × $0.15) / 1
= $262.50
MRC = (Change in cost) / (Additional units)
= $150 / 1
= $150
Since MRP > MRC, the firm should add the vehicle. Answer: Yes
b.
MRP = (Revenue change) / (Additional input)
= (1,750 × $0.15) / 1
= $262.50
MRC = (Change in cost) / (Additional units)
= $300 / 1
= $300
Since MRP < MRC, the firm should not add the vehicle. Answer: No
c.
MRP = (Revenue change) / (Additional input)
= (750 × $0.15) / 1
= $112.50
MRC = (Change in cost) / (Additional units)
= $150 / 1
= $150
Since MRP < MRC, the firm can’t increase profit. Answer: No
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