Why doesn’t FedEx buy more trucks and hire more drivers? What incentive problems might arise from this arrangement?

MODULE 5 DISCUSSION-MANAGERIAL ECONOMICS

Federal Express enters into contracts with independent truck operators who offer FedEx service and who are rewarded by the volume of packages
they carry. 

According to this information, answer the following questions:

Why doesn’t FedEx buy more trucks and hire more drivers? What incentive problems might arise from this arrangement?

MODULE 5 READINGS

Below is the chapter to read for module 5:

Parkin Michael (2010), Economics, Tenth Edition, Harlow: Pearson Addison-Wesley.

Chapter 10: Organizing production Pp. 227-245

Chapter 11: Outputs and Costs.  Pp. 251-267

ASSIGNMENT SPECIFICATIONS

• Use APA Style 6th Edition
• Maximum of 500 words, minus reference page.
• Use the course reading as part of the citations.

Answer

There are several reasons why FedEx might choose to contract with independent truck operators rather than buying more trucks and hiring more drivers. One reason could be to reduce costs. By using independent contractors, FedEx can avoid the expenses associated with hiring and training employees, such as salaries, benefits, and employment taxes. Additionally, FedEx can avoid the costs of maintaining and repairing its own fleet of trucks.

Another reason could be to increase flexibility. By using independent contractors, FedEx can adjust the number of trucks and drivers it uses based on changes in demand for its services. If demand for FedEx services increases, the company can simply contract with more independent truck operators to handle the Order a customized and more comprehensive answer here

However, this arrangement can also lead to incentive problems. Independent truck operators may not have the same level of motivation to deliver packages efficiently as employees who are directly employed by FedEx. This could …Order a customized and more comprehensive answer here