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 $200 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 $0.20 in revenue. Also assume that adding the delivery vehicle would not affect any other costs.

a. What are the MRP and MRC?

b. Now suppose that the cost of renting a vehicle doubles to $400 per day. What are the MRP and MRC?   

c. Next suppose that the cost of renting a vehicle falls back down to $200 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?  

    

Explanation / Answer

a. Marginal Revenue Product = 1500 X 0.20 = $ 300

Marginal Revenue Cost = Cost of additional vehicle = $ 200

b. Marginal Revenue Cost = $ 400

Marginal Revenue Product = 1500 X 0.20 = $ 300

c. Marginal Revenue Cost = $ 200

Marginal Revenue Product = 750 X 0.20 = $ 150

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.