Question

Suppose that a delivery company currently uses one employee per vehicle to deliver packages. Each driver delivers 40 packages per day, and the firm charges $10 per package for delivery.

A. What is the MRP per driver per day?

B. Now suppose that a union forces the company to place a supervisor in each vehicle at a cost of $150 per supervisor per day. The presence of the supervisor causes the number of packages delivered per vehicle per day to rise to 50 packages per day. What is the MRP per supervisor per day?

C. By how much per vehicle per day do firm profits fall after supervisors are introduced?

D. How many packages per day would each vehicle have to deliver in order to maintain the firm's profit per vehicle after supervisors are introduced?

E. Suppose that the number of packages delivered per day cannot be increased but that the price per delivery might potentially be raised. What price would the firm have to charge for each delivery in order to maintain the firm's profit per vehicle after supervisors are introduced?

Answer 1

Solution:

Given,

Delivery company currently uses one employee per vehicle to deliver packages

Each driver delivers 40 packages per day

irm charges $10 per package for delivery

a. .The MRP per driver per day is:

MRP = 40 X 10 = $ 400

b. union forces the company to place a supervisor in each vehicle at a cost of $150 per supervisor per day

presence of the supervisor causes the number of packages delivered per vehicle per day to rise to 50 packages per day.

the MRP per supervisor per day is:

MRP = (50 - 40)X $10 per package = 10 X 10 = $100

C. By how much per vehicle per day do firm profits fall after supervisors are introduced is:

Initially Profit is $ 400

After supervisor,

Profit = TR - TC = 50 X $10 - $ 150 = 500 - 150 = $ 350

So, profit falls by $ 50

d. packages per day would each vehicle have to deliver in order to maintain the firm's profit per vehicle after supervisors are introduced:

To cover the supervisor cost, per vehicle has to deliver 15 more packages i.e. $ 150/510.

Therefore, per day each vehicle has to deliver 55 packages.

e. if number of packages delivered per day cannot be increased but that the price per delivery might potentially be raised , price would the firm have to charge for each delivery in order to maintain the firm's profit per vehicle after supervisors are introduced:

TR which firm need to cover supervisor cost = 40 X 10 + 150 = S550

No. of packages = 40

New price will be: P X Q = TR

P X 40 = 550

P = 550/40 = $13.75