A delivery company is considering adding another vehicle to its delivery fleet:

Question

A delivery company is considering adding another vehicle to its delivery fleet: each vehicle is rented for $250 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 $0.25 in revenue. Also assume that adding the delivery vehicle would not affect any other costs. Instructions: Round your answers to 1 decimal place. What are the MRP and MRC? Should the firm add this delivery vehicle? Now suppose that the cost of renting a vehicle doubles to $500 per day. What are the MRP and MRC? Should the firm add a delivery vehicle under these circumstances? Next suppose that the cost of renting a vehicle falls back down to $250 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? Would adding a vehicle under these circumstances increase the firm's profits?

Explanation / Answer

Answer A-:

MRP = Total packages delivered * revenue from one package

MRP = 1750* 0.25 = $437.5

MRC = $250

So this vehical will earn profit of $187.5 therefore firm should add this delivery vehical.

Answer B:-

if cost of renting the vehical has increase $500 from $250 then

MRP will still be same = $437.5

MRC = $500

Now MRC >MRP, this will raise loss in the business . in this condition firm should not add the vehical in his fleet.

Answer C-:

If renting cost of vehical is $250 and hi delivers only 750 packages it means, it earn revenue of $187.5 which is less than its per day renting cost.

MRP = $187.5

MRC = $250

there will be loss, if firm add this vehical in the fleet. MRP < MRC , firm should not add this vehical

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