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 $150 per day. Assume that the additional vehicle would be capable of delivering 1500 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)YesNo.

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)YesNo.

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)YesNo.

Explanation / Answer

Req 1: Marginal revenue Number of units 1500 revenue per unit 0.15 Marginal revenue 225 Marginal cost (cost of wroker): 150 Yes, additional worker should be employed Req 2: Marginal revenue Number of units 1500 revenue per unit 0.15 Marginal revenue 225 Marginal cost (cost of wroker): 300 No, additional worker should not be employed Req 3: Marginal revenue Number of units 750 revenue per unit 0.15 Marginal revenue 112.5 Marginal cost (cost of wroker): 150 No, additional worker should not be employed

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