Arrows up or down: The decision about how fast to sail a cargo ship is based on the __________ benefit and the __________ cost. (Related to Application 2 on page 34.)

Transcribed Image Text:

Application 2 HOW FAST TO SAIL? APPLYING THE CONCEPTS #2: How do people think at the margin? Consider the decision about how fast to sail an ocean cargo ship. As the ship's speed increases, fuel consumption increases. For example, a 70,000-ton cargo ship burns 16.5 tons of fuel per day at 11 knots, compared to 21.4 tons at 12 knots, 27.2 tons at 13 knots, and 33.9 tons at 14 knots. In other words, speed is costly. On the benefit side, an increase in speed means that the ship delivers more cargo per year. To decide the best speed, the ship operator must find the speed at which the mar- ginal cost (the increase in fuel cost) equals the marginal ben- efit (the increase in revenue from delivered cargo). An increase in the price of fuel increases the marginal cost of speed, causing the shipper to slow the ship. Related to Exercise 2.4. SOURCE: Based on Martin Stopard, Maritime Economics, 3rd edition (New York: Routledge, 2007).