The transport company has a fixed monthly cost of $\text{₦}500{,}000$. Variable cost per kilometre is $\text{₦}150$, but traffic congestion raises this cost by 20 % for the month. Each round‑trip covers $120$ km and the bus makes two round‑trips per day for 30 days. The fare per passenger is $\text{₦}2{,}500$ and the bus capacity is 40 passengers.

Without any discount the average occupancy is 60 %. The company is considering a 10 % fare discount that will be applied whenever average occupancy exceeds 75 %; the discount is expected to raise average occupancy to 85 %.

Should the company adopt the discount policy? Compute the monthly profit in both cases and state the preferred policy.

Question

The transport company has a fixed monthly cost of $\text{₦}500{,}000$. Variable cost per kilometre is $\text{₦}150$, but traffic congestion raises this cost by 20 % for the month. Each round‑trip covers $120$ km and the bus makes two round‑trips per day for 30 days. The fare per passenger is $\text{₦}2{,}500$ and the bus capacity is 40 passengers.

Without any discount the average occupancy is 60 %. The company is considering a 10 % fare discount that will be applied whenever average occupancy exceeds 75 %; the discount is expected to raise average occupancy to 85 %.

Should the company adopt the discount policy? Compute the monthly profit in both cases and state the preferred policy.

Accepted Answer

Adopt the discount; profit with discount = $\text{₦}2{,}794{,}000$ (higher than profit without discount = $\text{₦}1{,}804{,}000$).

Neco 2021 Economics Question 18

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