A county's recycling program collected 46,280 tons of recyclable refuse this year. The cost of the program includes five vehicles that can partly process the recyclables. The county does not have the depreciation information for these trucks; but they estimate annual maintenance costs of up to $10,000 for each truck. The fuel expense totaled $69,000 this year. The county also hires fifty workers in the program. The annual personnel expense this year was $1.5 million. Other expenses this year included office expenses of $15,000, overhead of $189,000, and miscellaneous expenses of $150,000.

Recently, a small nearby city asked the county to provide recycling services. The city offered a fixed fee of $6.00 for every ton of recyclable material pickup. It is estimated that there will be 3,500 tons of pickup during the next year from the city. County analysts studied the proposal. They reckoned that, to add 3,500 tons of pickup, the county did not need new vehicles or new hiring. Office and miscellaneous expenses would also remain the same, but the fuel consumption and the overhead would increase.

Suppose that the city wants a two-year deal. In the second year of the deal, the recycling materials from the city will be 5,000 tons. The county analysis that a new vehicle is needed for the increase. The annual depreciation of the vehicle is $30,000, and the annual maintenance cost is the same, $10,000.

Treating the fuel and the overhead as variable costs and others as fixed costs, calculate the incremental cost and the marginal cost for the county. 

If the city still wants to pay the same rate for the service, $6.00 per ton, should the county accept the offer?

Answer rating: 100% (QA)

To calculate the incremental cost and marginal cost for the county we need to identify the fixed and ... View the full answer