Dusty is evaluating two bids to supply fence hardware for the 5 acres of pasture that need to be fenced. breezy submits a bid of
$40 per unit with a defect rate of 3%, and lady's bid is $50 per unit with a defect rate of 0.5%. if a section of fence fails, it costs an average of $500 in losses and herding costs to round up all of the capybaras. dusty believes it will take 500 units to fence in this pasture configuration; which supplier should win the business?
Let us see it from a cost-efficiency point of view. We have that every unit of the first selles costs 40$. But the total cost might be higher, since there is a chance for defect. On average, on 3% of the cases the defect will happen and it will cost him 500$. Hence, on average, a fence unit from producer a costs 40$ and has a repair cost of 3%*500$=15$. The total thus is 55$. For the second provider of fences, the standard cost is 50$. Similarly, the average repair cost is 0,5%*500$=2,5$. Hence, the total cost per unit is 52,5$ (total cost=upfront payment+repair costs). We see thus that the lady should win the bid; even if you pay more upfront, the difference in durability makes up the cost difference.
<span>Dusty believes it will take 500 units to fence in this pasture configuration; and the supplier that should win the business is the lady.</span>
Explanation: Effective market allocation is the economic market interaction discussed in this case study. As there was a storm and the power lines got down it was obvious that the demand for the batteries and flashlights will increase and the stock became insufficient but the market forces came into action leading to increase in supply and restoring demand and supply to equilibrium level .
