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A delivery company is considering adding another vehicle to its delivery fleet; each vehicle is rented for $350 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 $0.35 in revenue. Also assume that adding the delivery vehicle would not affect any other costs.

a. What are the MRP and MRC?
b.Should the firm add this delivery vehicle?
c. Now suppose that the cost of renting a vehicle doubles to $700 per day.

What are the MRP and MRC?Should the firm add a delivery vehicle under these circumstances? Next suppose that the cost of renting a vehicle falls back down to $350 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? Would adding a vehicle under these circumstances increase the firm’s profits?`

Answer :

Answer:

1. MRP = $525 , MRC = $350

2. Yes

3. MRP = $525 , MRC = $700

4. No

5.MRP = $262.5. MRC = $350

6. No

Explanation:

Marginal revenue product is the additional revenue generated by an extra unit of input added to a production process while marginal revenue cost incurred as a result of the extra unit added

MRP =change in total revenue/ change in unit.

MRC = change in total cost / change in unit

(a.) Cost of extra hire = $350 , extra delivery capacity = 1500 packages , Rate = $0.35

MRP = 1500*$0.35 = 525

MRC = $350.

MRP is greater than MRC , so it is advisable.

(b.)If the cost of extra hire doubles to $700 , extra delivery capacity $ rate  does not change.

MRP remains the same $525.

MRC = $700

MRC is greater than MRP.

It is not advisable

(C)Extra cost of hire = $350 , extra delivery capacity = 750 , rate = $0.35

MRP = 750*0.35=$262.5

MRC = $350

MRC greater than MRP . it is not advisable

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