View the step-by-step solution to:

# The owner of a small car-rental service is trying to decide on the appropriate numbers of vehicles and mechanics to use in the business for the...

The owner of a small car-rental service is trying to decide on the appropriate numbers of vehicles and mechanics to use in the business for the current level of operations. He recognizes that his choice represents a trade-off between the two resources. His past experience indicates that this trade-off is as follows:

Vehicles Mechanics

100 2.5 (include one part-timer)
70 5
50 10.
40 15
35 25
32 35

1. Assume that annual (leasing) cost per vehicle is \$6,000 and the annual salary per mechanic is \$25,000. What combination of vehicles and mechanics should he employ?
2. Illustrate the problem with the use of an iso-quant/iso-cost diagram. Draw two hypothetical iso-cost curves: one with annual leasing cost per vehicle being relatively inexpensive to the annual salary per mechanics, and another with annual leasing cost per vehicle being more expensive to the annual salary of mechanic. Indicate graphically the optimal combination of resources depending upon two reverse cases of iso-cost curves, and discuss implication behind two different optimal combinations of resources. To be consistent place leasing cost on vertical axis while mechanic’s salary on horizontal axis.

A
B When mechanics are more costly than vehicles we like to use more of vehicles shown by point
A on BL 2
When mechanics are less costly than vehicles we like to less of vehicles shown by point B...

### Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

### -

Educational Resources
• ### -

Study Documents

Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

Browse Documents