Marginal Costs are the additional amount of costs for each additional unit (in this case each additional customer
Marginal cost to go from 1 customer to 2: 32-30 = $2
From 2 to 3: 35-32= $3
From 3 to 4: 38-35= $3
From 4 to 5: 42-38= $4
From 5 to 6: 48-42 = $6
From 6 to 7: 57-48 = $9
From 7 to 8: 68-57= $11
As you can see, the more customers you add the higher marginal costs (and lower marginal rates of return) are. As long as marginal return/profit is higher than marginal costs it still makes sense to take more passengers. However once the marginal costs are higher than the marginal returns you will be losing money.
The ideal customer load is 7 customers.
Further Explanation:
Marginal revenue:
Marginal revenue is the increase in the revenue of the product with the sale of one additional unit. It is an important management tool as it helps the management to identify the revenue at different levels of sales. The management uses the data to set the standards for future sales. It is calculated by dividing the increase in revenue with the increase in the sold units.
[tex]\begin{aligned}\text{Marginal revenue}&=\frac{\text{Increase in revenue}}{\text{Increase in units sold}}\end{aligned}[/tex]
Selection of the most desirable customer load:
Calculate the total revenue by multiplying the per ride sales price with the number of the customer. After this, the profit/loss should be calculated by subtracting the total revenue from the total cost. The alternate with the highest level of profit should be preferred.
The company is earning the highest level of profit at the customer load of 7 customers, which is $13.
Thus, the ideal customer load is 7 customers.
Learn More:
Answer Details:
Grade: Middle school
Chapter: Marginal utility
Subject: Economics
Keywords: Suppose, company, runs, shuttle, business, hotel, from, local, airport, the costs, different, customer, loads, customer, customers.
