Activity 1: Selling Price And Break-even PointAbel Is A Metered Taxi Driver. His Company Charges The Following Fare For A Single Trip:- A Minimum Call-out Fee Of R50 Per Trip With The First Three Kilometers Being Free.- Thereafter, R15.00 For Each
Understanding the Problem
Abel is a metered taxi driver who operates in a competitive market. His company charges a specific fare for a single trip, which includes a minimum call-out fee and a charge per kilometer. In this activity, we will analyze the selling price and break-even point of Abel's taxi business.
The Fare Structure
The fare structure for a single trip is as follows:
- A minimum call-out fee of R50 per trip
- The first three kilometers are free
- Thereafter, R15.00 for each kilometer
Calculating the Total Fare
To calculate the total fare for a trip, we need to consider the minimum call-out fee and the charge per kilometer. Let's assume that the trip is x kilometers long. The total fare can be calculated as follows:
Total Fare = Minimum Call-out Fee + (x - 3) * Charge per Kilometer = R50 + (x - 3) * R15
Selling Price and Break-even Point
The selling price is the price at which Abel sells his services to the customer. The break-even point is the point at which Abel's revenue equals his costs. To calculate the break-even point, we need to consider the fixed costs (minimum call-out fee) and the variable costs (charge per kilometer).
Fixed Costs
The fixed costs are the minimum call-out fee, which is R50 per trip.
Variable Costs
The variable costs are the charge per kilometer, which is R15 per kilometer.
Break-even Point
The break-even point is the point at which Abel's revenue equals his costs. To calculate the break-even point, we need to set up an equation that equates the revenue with the costs.
Revenue = Total Fare = R50 + (x - 3) * R15
Costs = Fixed Costs + Variable Costs = R50 + (x - 3) * R15
To find the break-even point, we need to set up an equation that equates the revenue with the costs.
R50 + (x - 3) * R15 = R50 + (x - 3) * R15
Simplifying the equation, we get:
x = 3
This means that the break-even point is at 3 kilometers. However, this is not a realistic scenario, as the first three kilometers are free. Therefore, we need to consider the next kilometer.
Calculating the Break-even Point
Let's assume that the next kilometer is x kilometers long. The total fare can be calculated as follows:
Total Fare = Minimum Call-out Fee + (x + 1 - 3) * Charge per Kilometer = R50 + (x - 2) * R15
The break-even point is the point at which Abel's revenue equals his costs. To calculate the break-even point, we need to set up an equation that equates the revenue with the costs.
Revenue = Total Fare = R50 + (x - 2) * R15
Costs = Fixed Costs + Variable Costs = R50 + (x - 2) * R15
To find the break-even point, we need to set up an equation that equates the revenue with the costs.
R50 + (x - 2) * R15 = R50 + (x - 2) * R15
Simplifying the equation, we get:
x = 2
This means that the break-even point is at 2 kilometers. However, this is still not a realistic scenario, as the first three kilometers are free. Therefore, we need to consider the next kilometer.
Calculating the Break-even Point
Let's assume that the next kilometer is x kilometers long. The total fare can be calculated as follows:
Total Fare = Minimum Call-out Fee + (x + 2 - 3) * Charge per Kilometer = R50 + (x - 1) * R15
The break-even point is the point at which Abel's revenue equals his costs. To calculate the break-even point, we need to set up an equation that equates the revenue with the costs.
Revenue = Total Fare = R50 + (x - 1) * R15
Costs = Fixed Costs + Variable Costs = R50 + (x - 1) * R15
To find the break-even point, we need to set up an equation that equates the revenue with the costs.
R50 + (x - 1) * R15 = R50 + (x - 1) * R15
Simplifying the equation, we get:
x = 1
This means that the break-even point is at 1 kilometer. However, this is still not a realistic scenario, as the first three kilometers are free. Therefore, we need to consider the next kilometer.
Calculating the Break-even Point
Let's assume that the next kilometer is x kilometers long. The total fare can be calculated as follows:
Total Fare = Minimum Call-out Fee + (x + 3 - 3) * Charge per Kilometer = R50 + x * R15
The break-even point is the point at which Abel's revenue equals his costs. To calculate the break-even point, we need to set up an equation that equates the revenue with the costs.
Revenue = Total Fare = R50 + x * R15
Costs = Fixed Costs + Variable Costs = R50 + x * R15
To find the break-even point, we need to set up an equation that equates the revenue with the costs.
R50 + x * R15 = R50 + x * R15
Simplifying the equation, we get:
x = 0
This means that the break-even point is at 0 kilometers. However, this is not a realistic scenario, as the first three kilometers are free. Therefore, we need to consider the next kilometer.
Conclusion
In conclusion, the break-even point for Abel's taxi business is not a fixed point, but rather a range of points. The break-even point is the point at which Abel's revenue equals his costs. To calculate the break-even point, we need to consider the fixed costs (minimum call-out fee) and the variable costs (charge per kilometer). The break-even point is the point at which the revenue equals the costs.
Recommendations
Based on the analysis, the following recommendations can be made:
- Abel should consider increasing the minimum call-out fee to increase his revenue.
- Abel should consider decreasing the charge per kilometer to increase his revenue.
- Abel should consider offering discounts to customers who travel long distances to increase his revenue.
Limitations
The analysis has several limitations. The analysis assumes that the first three kilometers are free, which may not be a realistic scenario. The analysis also assumes that the charge per kilometer is constant, which may not be a realistic scenario. Therefore, the analysis should be taken as a rough estimate rather than a precise calculation.
Future Research
Q: What is the selling price of Abel's taxi business?
A: The selling price of Abel's taxi business is the price at which he sells his services to the customer. In this case, the selling price is the total fare, which includes the minimum call-out fee and the charge per kilometer.
Q: How is the break-even point calculated?
A: The break-even point is calculated by setting up an equation that equates the revenue with the costs. The revenue is the total fare, and the costs are the fixed costs (minimum call-out fee) and the variable costs (charge per kilometer).
Q: What are the fixed costs of Abel's taxi business?
A: The fixed costs of Abel's taxi business are the minimum call-out fee, which is R50 per trip.
Q: What are the variable costs of Abel's taxi business?
A: The variable costs of Abel's taxi business are the charge per kilometer, which is R15 per kilometer.
Q: How does the break-even point change if the charge per kilometer increases?
A: If the charge per kilometer increases, the break-even point will also increase. This is because the variable costs will increase, and the revenue will need to increase to cover the costs.
Q: How does the break-even point change if the minimum call-out fee increases?
A: If the minimum call-out fee increases, the break-even point will also increase. This is because the fixed costs will increase, and the revenue will need to increase to cover the costs.
Q: What is the impact of competition on the break-even point?
A: The impact of competition on the break-even point is that it will increase the break-even point. This is because the competition will drive down the price of the taxi service, and the revenue will need to increase to cover the costs.
Q: How can Abel's taxi business increase its revenue?
A: Abel's taxi business can increase its revenue by increasing the minimum call-out fee, decreasing the charge per kilometer, or offering discounts to customers who travel long distances.
Q: What are the limitations of the analysis?
A: The analysis has several limitations. The analysis assumes that the first three kilometers are free, which may not be a realistic scenario. The analysis also assumes that the charge per kilometer is constant, which may not be a realistic scenario. Therefore, the analysis should be taken as a rough estimate rather than a precise calculation.
Q: What are the future research directions?
A: Future research should focus on developing a more realistic model of the taxi business. The model should take into account the fixed costs, variable costs, and revenue of the business. The model should also take into account the competition in the market and the demand for taxi services.
Q: What are the implications of the analysis for Abel's taxi business?
A: The implications of the analysis for Abel's taxi business are that it should consider increasing the minimum call-out fee, decreasing the charge per kilometer, or offering discounts to customers who travel long distances to increase its revenue. The analysis also suggests that the break-even point is not a fixed point, but rather a range of points, and that the business should be prepared to adapt to changes in the market.