The owner of a small car rental service is trying to decide on the appropriate n
ID: 1257542 • Letter: T
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 trade-off is as follows:
Vehicles
Mechanics
100
2.5 (includes part-time)
70
5
50
10
40
15
35
25
32
35
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?
2.
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:
Mexico
Taiwan
Canada
Hourly Wage Rate
$1.50
$3.00
$6.00
Output per Person
10
18
20
Fixed Overhead Cost
$150,000
$90,000
$110,000
If we use output per person as a proxy for marginal product, what is output/wage rate for each country?
3.
Which location has the highest MP per dollar?
Mexico
Taiwan
Canada
Cannot determine with the information available.
Vehicles
Mechanics
100
2.5 (includes part-time)
70
5
50
10
40
15
35
25
32
35
Explanation / Answer
Ans 1.
The combination that would incurred least cost will be employed.
Least cost is incurrred as $545000 when 70 vehicles and 5 mechanics are employed. hence this combination is optimal.
Units of vehicles Mechanics Cost of vehicle = vehilce * 6000 cost of mechanics = mechanics * 25000 Total cost 100 2.5 600000 62500 662500 70 5 420000 125000 545000 50 10 300000 250000 550000 40 15 240000 375000 615000 35 25 210000 625000 835000 32 35 192000 875000 1067000Related Questions
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