The owner of a small car rental service is trying to decide

The owner of a small car rental service is trying to decide on the appropriate numbers of vehicles and mechanics to use in the business for the current level of operations. He recognizes that his choice represents a trade-off between the two resources. His past experience indicates that this trade-off is as follows:

Vehicles

Mechanics

100

2.5 (includes part-time)

70

5

50

10

40

15

35

25

32

35

If the annual leasing cost per vehicle is $6000 & the annual salary per mechanic is $25,000. What combination of vehicles & mechanics should he employ?

2.

An American company that sells consumer electronics products has manufacturing facilities in Mexico, Taiwan, and Canada. The average hourly wage, output, and annual overhead cost for each site are as follows:

Mexico

Taiwan

Canada

Hourly Wage Rate

$1.50

$3.00

$6.00

Output per Person

10

18

20

Fixed Overhead Cost

$150,000

$90,000

$110,000

If we use output per person as a proxy for marginal product, what is output/wage rate for each country?

3.

Which location has the highest MP per dollar?

Mexico

Taiwan

Canada

Cannot determine with the information available.

Vehicles	Mechanics
100	2.5 (includes part-time)
70	5
50	10
40	15
35	25
32	35

Solution

Ans 1.

The combination that would incurred least cost will be employed.

Least cost is incurrred as $545000 when 70 vehicles and 5 mechanics are employed. hence this combination is optimal.

Units of vehicles	Mechanics	Cost of vehicle = vehilce * 6000	cost of mechanics = mechanics * 25000	Total cost
100	2.5	600000	62500	662500
70	5	420000	125000	545000
50	10	300000	250000	550000
40	15	240000	375000	615000
35	25	210000	625000	835000
32	35	192000	875000	1067000