Managerial Economics

4-2 Game Day Shuttle Service

You run a game day shuttle service for parking

services for the local ball club. Your costs for different

customer loads are 1: $30, 2: $32, 3: $35,

4: $38, 5: $42, 6: $48, 7: $57, and 8: $68. What

are your marginal costs for each customer load

level? If you are compensated $10 per ride,

what customer load would you want?

4-6 Copier Company

A copy company wants to expand production. It

currently has 20 workers who share eight copiers.

Two months ago, the firm added two copiers,

and output increased by 100,000 pages per day.

One month ago, they added five workers, and

productivity also increased by 50,000 pages per

day. Copiers cost about twice as much as workers.

Would you recommend they hire another?

employee or buy another copier?

5-4 Solar Panel Installation

A university spent $1.8 million to install solar panels atop a parking garage. These panels will

have a capacity of 500 kw, have a life expectancy of 20 years and suppose the discount rate is 10%.

A. If electricity can be purchased for costs of $0.10 per kwh, how many hours per year

will the solar panels have to operate to make this project break even?

B. If efficient systems operate for 2,400 hours

per year, would the project break even?

C. The university is seeking a grant to cover

capital costs. How big of a grant would make

this project worthwhile (to the university)?

5-5 Toy Trucks

Last year, a toy manufacturer introduced a new toy truck that was a huge success. The company invested $2.5 million for a plastic injection molding machine (which can be sold for $2.0 million) and $100,000 in plastic injection molds specifically for the toy (not valuable to anyone else). Labor and the cost of materials necessary to make each truck is about $3. This year, a competitor has developed a similar toy that has significantly reduced demand for the toy truck. Now, the original manufacturer is deciding whether they should continue production of the toy truck. If the estimated demand is 100,000 trucks, what is the break-even price for the toy truck? Should you shut down?