The student engineering society is building a snack cart to raise money. Members must decide what capacity the cart should be able to serve. To serve 100 customers per hour costs $10,310, and to serve 150 customers per hour costs $13,400. The 50% increase in capacity is less than 50% of $10,310 because of economies of scale; but the increase in net revenue will be less than 50%, since the cart will not always be serving 150 customers per hour. The estimated net annual income for the lower capacity is $3300, and for the higher capacity it is $4000. After 5 years the cart is expected to have no salvage value. The engineering society is unsure of what interest rate to use to decide on the capacity. Make a recommendation.
The student engineering society is building a snack cart to raise money. Members must decide what capacity the cart should be able to serve. To serve 100 customers per hour costs $10,310, and to serve 150 customers per hour costs $13,400. The 50% increase in capacity is less than 50% of $10,310 because of economies of scale; but the increase in net revenue will be less than 50%, since the cart will not always be serving 150 customers per hour. The estimated net annual income for the lower capacity is $3300, and for the higher capacity it is $4000. After 5 years the cart is expected to have no salvage value. The engineering society is unsure of what interest rate to use to decide on the capacity. Make a recommendation.
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