Question

Oversize Transport Inc. supplies custom delivery service for very large construction equipment in the southeast region of United States. The most common lead of the specialty trucker is the Caterpillar model 740 dump truck, which is about 258 feet long. The owner of Oversize Transport, who also drives the firm's single 275-foot-long tractor-trailer rig, chooses to lease this huge piece of capital equipment under a five-year contract requiring monthly lease payments of $5,500 per month. Oversize Transport could not service this profitable market with any rig shorter than 275 feet. A typical delivery takes about a day and a half, so Oversize Transport can make at the most only 20 deliveries per month with its one tractor-trailer rig. Under what circumstances is the tractor-trailer a fixed input? A quasi-fixed input?

Answer 1

Explanation:

The tractor-trailer rig is a fixed input under the circumstances described because it is necessary for the business to service this profitable market and it cannot be replaced with any other type of capital equipment. The tractor-trailer is a quasi-fixed input because it has a five-year contract that requires monthly lease payments, so it is not completely fixed in the sense that the business can replace it with another piece of capital equipment at any time.