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 (includes one part-timer)
70 ............................. 5
50 ............................. 10
40 ............................. 15
35 ............................. 25
32 ............................. 35
a. Assume the annual (leasing) cost per vehicle is $6,000 and the annual salary per mechanic is $25,000. What combination of vehicles and mechanics should he employ?
b. Illustrate this problem with the use of an isoquant/isocost diagram. Indicate graphically the optimal combination of resources.