Question

In: Economics

A custom harvesting firm is considering adding another tractor to its fleet; each tractor is rented...

A custom harvesting firm is considering adding another tractor to its fleet; each tractor is rented for $1500 per day. Assume that the additional tractor would be capable of harvesting 100 acres per day and that each acre that is harvested brings in $20 in revenue. Also assume that adding the tractor would not affect any other costs.

a. Calculate the MRPc. Show your work.

b.Should the firm add this tractor? Explain your answer.

c. Suppose the revenue drops to $13 per acre harvested. Should the firm add the tractor in this scenario? Explain your answer.

d. A firm invested $500 at 6% interest. What will be the balance for the investment after 7 years?   Show your work.

Solutions

Expert Solution

Ans:- (A) we know that each additional tractor would be capable of harvesting 100 acres per day and that each acre that is harvested brings in $20 in revenue so total revenue for 100 acres is $20*100= $2000. so Marginal revenue product for each additional tractor is $2000 per day

(B ) Yes , the firm should add this tractor because Marginal cost for each additional tractor is lower than marginal revenue for each additional tractor. MR>MC = profit. each tractor is rented for $1500 so marginal cost is $1500 where as marginal revenue is $2000 so it's profitable for the firm to add this tractor.

(C) Suppose the revenue drops to $13 per acre harvested so total marginal revenue for per day is $13*100 = $1300. whereas marginal cost is $1500. so here, the firm should not add this tractor because it would give firms loss as Marginal cost is greater than marginal revenue. MC>MR = loss

(D) here not any details provided for compounding..so i considered as per simple interest formula.

p=$500

R=6%

n= 7 years

A = P ( 1+Rt)

A = 500(1 + (0.06 × 7))
A = $710

so if the firm investment $500 at 6% then it will get $710 after 7 years.

Rahul Sunny answered 2 years ago
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