# Tutorial: Zone of Negotiation How to set the upper and lower limits!!

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Tutorial: Zone of Negotiation How to set the upper and lower limits!!

Situation Parka value in NYC = \$100 Manufacturing Cost in Chicago = \$35 Transportation Fixed Cost = \$10 Transportation Variable Cost = \$20 Full Capacity Excess Capacity

Situation Parka value in NYC = \$100 Manufacturing Cost in Chicago = \$35 Transportation Fixed Cost = \$10 Transportation Variable Cost = \$20 Full Capacity Excess Capacity Shipper Max So, most shipper can pay and still make a profit. Value – Mfg Cost = Max Trans Cost \$100 - \$35 = \$65 is Max Trans Cost

Situation Parka value in NYC = \$100 Manufacturing Cost in Chicago = \$35 Transportation Fixed Cost = \$10 Transportation Variable Cost = \$20 Full Capacity Excess Capacity 100-35=\$65 \$65 Note: The top is the same regardless of the carriers capacity.

Situation Parka value in NYC = \$100 Manufacturing Cost in Chicago = \$35 Transportation Fixed Cost = \$10 Transportation Variable Cost = \$20 Full Capacity Excess Capacity Carrier Min This changes based on capacity Full Capacity = Total Cost (VC+FC) Excess Capacity = Variable Cost only

Situation Parka value in NYC = \$100 Manufacturing Cost in Chicago = \$35 Transportation Fixed Cost = \$10 Transportation Variable Cost = \$20 Full Capacity Excess Capacity Carrier Min TC = VC+FC 10+20=\$30 VC \$20

Situation Parka value in NYC = \$100 Manufacturing Cost in Chicago = \$35 Transportation Fixed Cost = \$10 Transportation Variable Cost = \$20 Full Capacity Excess Capacity TC = VC+FC 10+20=\$30 VC \$20 100-35=\$65 \$65

Situation Parka value in NYC = \$100 Manufacturing Cost in Chicago = \$35 Transportation Fixed Cost = \$10 Transportation Variable Cost = \$20 Backhaul???? Cost does matter in Negotiation +\$0 \$65

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