Question

JOVAN and Movers rents out truck with a crew of 2 on a daily basis, usually to the homeowners who are moving house or to companies with delivery problems. On one particular day Shruti P & M is a truck short and intends hiring one from a local truck rental firm. How big a truck should he rent? A large truck costs $200 per day (including insurance, fuel, etc.), a small truck $130 per day. A small truck is cheaper but if the load is too large, the crew may have to make two trips. Jovan assesses the additional cost of making two trips (overtime and truck mileage) at $150 beyond the costs for a single trip. He assesses the probability that two trips will be necessary if he rents a small truck at 0.40. Assume that if Jovan rents a large truck it can accommodate any size load in a single trip.a. Assuming there are no other ramifications to the decision, should Jovan rent a large truck or a small truck?

Answer 1

JOVAN and MOVERS

Cost of renting large truck = $200

Cost of renting small truck

cost per day = $130

cost of making two trips ( $150*0.4) 60

$190

since the cost of renting two small truck is lower than cost renting large truck, Jovan should rent small truck

Step-by-step explanation: