A logistics company is deciding whether to run one additional delivery truck tonight. The truck will cost £350 \pounds 350\,£350 in fuel and driver wages to operate, and is expected to generate £420 \pounds 420\,£420 in additional revenue. The company’s current average cost per truck-run is £450\pounds 450£450.
Applying the concept of the margin, the company should:
not run the truck because the average cost (£450\pounds 450£450) exceeds the marginal revenue (£420\pounds 420£420) generated.
run the truck because the marginal revenue (£420\pounds 420£420) exceeds the marginal cost (£350\pounds 350£350).
not run the truck because the marginal cost (£350\pounds 350£350) is less than the average cost (£450\pounds 450£450), indicating productive inefficiency.
run the truck because total profit is maximized when marginal revenue equals average cost.
