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 1,750 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 not affect any other cost.

a) what are the MRP and MRC

MRP=

MRC=

b) Now suppose that the cost of renting a vehicle doubles to $300 per day. What are the MRP and MRC?

MRP=

MRC=

c) Next suppose that the cost of the renting a vehicle falls back down to $150 per day but, due tp extremely congested freeways, an additional vehicle would only be able to deliver 750 packages per day. What are the MRP and MRC?

MRP=

MRC=

Answer 1

A.

MRP = Total packages delivered * revenue from one package

MRP = 1750* 0.15 = $262.5

MRC = $150

So this vehicle will earn profit of $112.5. Therefore, firm should add this delivery vehicle.

B.

If cost of renting the vehicle has increased to $300 from $150 then,

MRP will still be same = $262.5

MRC = $300

Since MRC >MRP, this will raise loss in the business . In this condition firm should not add the vehicle into his fleet.

C

If renting cost of vehicle is $150 and he delivers only 750 packages it means, it earn revenue of $112.5 which is less than its per day renting cost.

MRP = 750 x 0.15

= $112.5

MRC = $250

Since MRC > MRP so there will be loss, if firm add this vehicle in the fleet. Therefore, firm should not add this vehicle.