4-2 Game Day Shuttle Service

Load Size Total Cost MC (Person + Total Profit

1Load size) Revenue
1 $30 - 10 -20
2 $32 2 20 -12
3 $35 3 30 -5
4 $38 3 40 -2
5 $42 4 50 8
6 $48 6 60 12
7 $57 9 70 13
8 $68 11 80 12

Marginal cost is the cost due to an extra item. Maximum profit is obtained from the customer 7;
so the load of customer 7 is chosen.

4-6 Copier Company

Since the marginal productivity of two copiers is 100,000 pages per day, they can produce
50,000 pages per day using a copier. When 5 new employees were added, the marginal
productivity is 50,000 pages per day, which means that 10,000 pages is produced per day by
each person.

Marginal productivity of a copier is 100,000 pages/2 copiers =50,000 pages.

Marginal productivity of a worker is 50,000 pages/5 workers = 10,000 pages.

Buying an extra copier will be 5 times better than an extra worker. So it is better to buy another
copier than hiring another employee.

5-4 Solar Panel Installation

a.
The PV is the 20 year discounted value. Assume that the solar panel operates for one
hour each for 20 years and generates 500 kw each year.

For one hour of operation each year, it would generate

(500 kw * $0.10/kwh) = $50 electricity per year.
The present value is:
 PV = $50/(1+10%) + $50/(1+10%)2 + $50/(1+10%)3 +...+ $50/(1+10%)20
= $50/(1.1) + $50/(1.12 + $50/(1.1)3 +...+ $50/(1.1)20
= $425.68

b.
For breakeven, it should run for
($1.8 million / $425.68) = 4,228.53 hours per year

So, the system will not break even because 2,400 hours per year system is not
productive.

c.
For an efficient system of 2,400 hours, we have a PV of

($425.28*2400) = $1,021,632
($1800,000 – $1,021,632) = $778,368

The University will need a grant of $778,368 would make the project worthwhile.

5-5 Toy Trucks

Break-even quantity is equal to fixed cost divided by the contribution margin.

To find if this company will break-even, we will take the cost of producing the trucks.

This cost includes $3 per truck + $2.0 million for a demand of 100,000 trucks

Break-even price = (($2.0 million / 100,000) + $3) = $23.

If the company cannot sell 100,000 trucks at a mimimum price of $23, then their investment is
not profitable and they should shut down.