The Garbage Muncher Inc, a Commercial Garbage Service, Is Considering

Essay

The Garbage Muncher Inc, a commercial garbage service, is considering the purchase of a newer combination truck and open top dumpster system which will allow them to collect 10 additional tons of garbage per day. The new system will require an additional capital investment of $96,000 per year based on a 240 workday year of 8 working hours per day. As an alternative Muncher could hire additional laborers at $7.50 per hour. These laborers, utilizing current equipment, can load one ton of garbage every four hours. Assume that demand for Muncher's services is great, and that they intend to expand to meet this demand. Also assume that with the utilization of either system, Muncher's price exceeds its average variable cost) If Muncher wishes to maximize profit, should they purchase a new system or hire more laborers? Why?