Which mode should the shipper select?
A large manufacturer uses two factors to decide whether to use truck or rail for movement of its products to market: cost and total travel time. The manufacturer uses a utility formula that rates each mode. The formula is U = 6C + 14T, where C is cost ($/ton) and T is time (hrs). For a given shipment of goods, a trucking firm can deliver in 12 hrs and charges $30/ton, whereas a railroad charges $22/ton and can deliver in 16 hrs.
What will be an ideal response?
Let Utruck be the (dis)utility function for the trucks and Urail the (dis)utility function for the railroad.
Utruck = 6(30) + 14(12)
Utruck = 348
Next solve the utility formula for shipping via the railroad.
Urail = 6(22) + 14(16)
Urail = 356
Based on the results of the above utility formula, the shipper should ship his goods by truck since Utruck < Urail.
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