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Suppose that a delivery company currently uses one employee per vehicle to deliver packages. Each driver delivers 60 packages per day, and the firm charges $20 per package for delivery.

Required:
a. What is the MRP per driver per day?
b. Now suppose that a union forces the company to place a supervisor in each vehicle at a cost of $300 per supervisor per day. The presence of the supervisor causes the number of packages delivered per vehicle per day to rise to 60
packages per day What is the MRP per supervisor per day? By how much per vehicle per day do firm profits fall after supervisors are introduced?
c. How many packages per day would each vehicle have to deliver in order to maintain the firm's profit per vehicle after supervisors are introduced?
d. Suppose that the number of packages delivered per day cannot be increased but that the price per deliver might potentially be raised. What price would the firm have to charge for each delivery in order to maintain the firm's profit per
vehicle after supervisors are introduced?

User Blunova
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1 Answer

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Final answer:

The Marginal Revenue Product (MRP) for a driver is $1200 per day. Introducing a supervisor costs the company $300 per vehicle per day without increasing deliveries. To maintain profit, the price per package would need to be raised to $25.

Step-by-step explanation:

The student's question involves calculating the marginal revenue product (MRP) for drivers and supervisors as well as changes in firm profits and pricing strategies under different scenarios related to employment and wages within a delivery company.

a. MRP per driver per day

The MRP per driver per day can be calculated by multiplying the number of packages delivered by the price per package. Since each driver delivers 60 packages per day at $20 each, the MRP per driver is 60 packages × $20/package = $1200 per day.

b. MRP per supervisor and profit changes

If supervisors are introduced at a cost of $300 per day with no change in the number of packages delivered, the MRP per supervisor per day would be $0, as their presence does not increase the output.

The introduction of supervisors reduces profits by the cost of the supervisor, which is $300 per vehicle per day.

c. Packages per day for the same profit

To maintain the firm's profit per vehicle after the introduction of supervisors without changing the price, the company would need to deliver enough packages to cover the supervisor's cost.

This is not possible given the unchanged delivery count of 60 packages per day.

d. New price to maintain profit

If the number of packages delivered cannot increase, the firm would need to raise the price by the cost of the supervisor divided by the number of packages. The new price per package would be ($300 supervisor cost / 60 packages) + $20 original price = $25 per package.

User Red
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