A Manager Intends to Order a New Machine and Must $$\begin{array} { l l } \text { Usage } & \text { Frequency } \\\hline 0 & .08 \\1 & .30 \\2 & .24 \\3 & .20 \\4 & .18\end{array}$$

question 128

Essay

A manager intends to order a new machine and must now decide on the number of spare parts to order along with the machine. The parts cost $400 each and have no salvage value. The manager has compiled a frequency distribution for the probable usage of spare parts, as shown: $$\begin{array} { l l } \text { Usage } & \text { Frequency } \\\hline 0 & .08 \\1 & .30 \\2 & .24 \\3 & .20 \\4 & .18\end{array}$$ For what range of shortage costs would stocking one spare part constitute an optimal decision?

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Definitions:

MRP of Labor

Marginal Revenue Product of Labor, which measures the change in total revenue that results from employing one additional unit of labor.

MRP of Land

The marginal revenue product of land refers to the additional revenue earned from the use of an extra unit of land, holding other factors constant.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a resource, such as labor or capital.

Marginal Physical Product

The additional output that is produced by employing one more unit of an input, holding other inputs constant.