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, all the vehicles of which are rented for $100 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 $0.1 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 $200 per day. What are the MRP and MRC in this situation?

c. Next suppose that the cost of renting a vehicle falls back down to $100 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. Here MRP is the marginal revenue from one more vehicle MRP = 1750 * 0.1 = $175 MRC is the marginal cost of one more vehicle MRC = $100 b. If cost of renting becomes double MRC = $200 MRP would remain the same c. MRC = $100 MRP = 750*0.1 = $75

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