Question

The lower per-mile costs enjoyed by transportation as a shipment covers greater distance is reflected in a concept referred to as the ___.

a) Pareto principle
b) diminishing return concept
c) Petrona principle
d) tapering principle
e) Veranzano principle

Answer 1

The tapering principle explains that as transportation distance increases, the per-mile cost decreases due to the distribution of fixed costs over the greater distance. This principle is essential for businesses like a messenger company, as lower gasoline prices enable them to reduce operating expenses, grow their service area, and increase supply.

Step-by-step explanation:

The concept that reflects the lower per-mile costs enjoyed by transportation as a shipment covers greater distance is known as the tapering principle. This principle suggests that as the distance increases, the marginal cost of transportation decreases because fixed costs such as fuel and vehicle maintenance are spread out over a longer distance, thus reducing the cost per mile.

For instance, consider a messenger company that primarily deals with delivering packages across a city. If the price of gasoline goes down, the company can provide its services more cheaply due to the lower operating costs. This leads to an increase in profit margins, enabling the company to expand its service area and increase its supply without significantly raising prices.