New 



10 X $2.32 = $23.20 

 30 X 2.15 = 64.50 



Old 



28 X $1.79 = $50.20 

 12 X 1.88 = 22.60 



40 X (2.19) 



87.70 



40 X (1.82) = 72.80 



Suppose, however, that Company A sells one of its trucks now used in 

 bagged deliveries and is able to convert 16 tons to bulk, dividing the re- 

 mainder between the two bagged trucks. Under such conditions the former 

 average cost for all bagged feed delivery was $1.82 per ton, but the new 

 arrangements would result in a new average cost for all deliveries of $1.73 

 per ton, i.e., 



New Old 



24 X $1.88 = $45.12 

 16 X 1.51 = 24.16 



28 X 

 12 X 



n.79 = $50.20 

 1.88 = 22.60 



40 X (1.73) 



69.28 



40 X (1.82) = 72.80 



In both of the preceding examples, equipment is used at relatively high 

 efficiency. Use at less efficient rates would increase the likelihood that dis- 

 economies would result from the superimposing of bulk feed delivery on 

 top of an established bagged feed delivery system. 



Any attempt to subdivide a given share of the market between two 

 systems obviously will increase average costs in the short run. Thus, fol- 

 lowing the same approach as the preceding, any new firm entering a given 

 market and taking customers away from the established firms because it 

 offers bulk delivery may: (1) experience difficulty even in the short run in 

 obtaining enough volume to cut its own costs to a reasonable level; (2) 



o 



I- 



tK 

 UJ 

 Q- 



m 

 a: 



o 



Q 

 I 



h- 



(n 

 o 

 o 



-BULK FEED DELIVERY 



MAXIMUM USE OF 

 BAGGED EQUIPMENT 



-ADDITIONAL 



EQUIPMENT 



ADDED 



BAGGED FEED DELIVERY 



--^ 



MAXIMUM USE OF BULK EQUIPMENT 



I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 



TONS DELIVERED PER DAY 



Figure 10. Average cost curves for bagged and bulk feed delivery under 



assumed conditions. 



44 



