With the volatility of gasoline prices in recent years, consumers have moved to high miles-per-gallon (mpg) vehicles, in particular hybrid autos that rely on a battery as well as a gasoline engine for even greater mpg. The new vehicles save money on gas, but also reduce the motorist’s “carbon footprint” in an environment of global warming. To encourage the purchase of fuel-efficient vehicles such as hybrids, the government may provide incentives, including income-tax credits, which represent dollar-for-dollar reductions in the income tax liability of the individual in the year of purchase. As both a cost conscious and an environmentally conscious consumer, you are currently evaluating whether to purchase a hybrid vehicle. Assume that you have narrowed your decision down to two choices: a gasoline-powered vehicle or its equivalent hybrid (e.g., Ford Escape versus Escape hybrid). Relevant information regarding each of these two vehicles is as follows: Assume, further, that you plan to keep your auto for 4 years and that, based on recent experience, will likely drive the car 15,000 miles per year (60,000 miles in total). Required Generate a cost function for each decision alternative, where the dependent variable, Y, is “lifetime cost” and the independent variable, X, is “lifetime miles driven.” Calculate the breakeven price for gas (per gallon) between the gasoline-powered model and the hybrid model. Prepare a graph for lifetime cost (Y) for each of the two autos as a function of price per gallon of gas (X), based on 60,000 lifetime miles for each auto. Use the following values of X (price per gallon of gas) to generate each cost function: $2.75, $3.00, $3.25, $3.50, $3.75, $4.00, $4.25, $4.50, $4.75, and $5.00. Properly label each graph, including the points of intersection. What can you conclude based on the graph you prepared? This decision problem is similar to the choice of cost structure (variable vs. fixed) discussed in the chapter. Here, the issue is whether t
With the volatility of gasoline prices in recent years, consumers have
With the volatility of gasoline prices in recent years, consumers have moved to high miles-per-gallon (mpg) vehicles, in particular hybrid autos that rely on a battery as well as a gasoline engine for even greater mpg. The new vehicles save money on gas, but also reduce the motorist’s “carbon footprint” in an environment of global warming. To encourage the purchase of fuel-efficient vehicles such as hybrids, the government may provide incentives, including income-tax credits, which represent dollar-for-dollar reductions in the income tax liability of the individual in the year of purchase. As both a cost conscious and an environmentally conscious consumer, you are currently evaluating whether to purchase a hybrid vehicle. Assume that you have narrowed your decision down to two choices: a gasoline-powered vehicle or its equivalent hybrid (e.g., Ford Escape versus Escape hybrid). Relevant information regarding each of these two vehicles is as follows: Assume, further, that you plan to keep your auto for 4 years and that, based on recent experience, will likely drive the car 15,000 miles per year (60,000 miles in total). Required Generate a cost function for each decision alternative, where the dependent variable, Y, is “lifetime cost” and the independent variable, X, is “lifetime miles driven.” Calculate the breakeven price for gas (per gallon) between the gasoline-powered model and the hybrid model. Prepare a graph for lifetime cost (Y) for each of the two autos as a function of price per gallon of gas (X), based on 60,000 lifetime miles for each auto. Use the following values of X (price per gallon of gas) to generate each cost function: $2.75, $3.00, $3.25, $3.50, $3.75, $4.00, $4.25, $4.50, $4.75, and $5.00. Properly label each graph, including the points of intersection. What can you conclude based on the graph you prepared? This decision problem is similar to the choice of cost structure (variable vs. fixed) discussed in the chapter. Here, the issue is whether t
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