1. 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) 625,500
70 5 545,000
50 10 550,000.
40 15 615,000
35 25 835,000
32 35 1,067,000
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.