Cheapest Car Rental rents cars at the Chicago airport. The car rental market con
ID: 3073199 • Letter: C
Question
Cheapest Car Rental rents cars at the Chicago airport. The car rental market consists of two segments: the short-term segment, which rents for an average of 0.8 weeks, and the medium-term segment, which rents for an average of 2 weeks. Cheapest currently rents an average of 200 cars a week to the short-term segment and 100 cars a week to the medium-term segment. Approximately 20 percent of the cars returned (evenly distributed across both segments) are found to be defective and in need of repairs before they can be made available for rent again. The remaining cars, not needing repairs are cleaned, filled with gas, and made available for rent. On average, there are 92 cars waiting to be cleaned (or in the cleaning process). The average cost of this operation is $5 per car. Cars needing repair spend an average of two weeks out of service and incur an average cost of $150 per car. Assume that cars are rented as soon as they are available for rent, that is, as soon as they have been cleaned or repaired. Short term renters pay $200 per week (not $200 per rental - rental time is shorter than a week), while medium term renters pay $120 per week. Assume each car loses $40 in value per week due to depreciation. What is the average weekly profit rounded to the nearest whole dollar?
Explanation / Answer
Firstly, we will calculate the total income
Income from short term segment cars in a week = 200 × $200 = $40000
Income from middle term segment cars in a week = 100 × $120 = $12000
Total income = $40000 + $12000 = $52000
Now, we will calculate the expenses
20% cars returned are found to be defective and evenly distributed between both segments, i.e. , 10% of cars from short term segment and 10% cars from middle term segment.
= 10% of 200 cars + 10% of 100 cars
= 20 + 10 cars
= 30 cars
Reparing cost per car = $150
Reparing cost of 30 cars = $150 × 30
= $4500
Now, cleaning cost per car = $5
Cleaning cost for 92 cars = $5 × 92
= $460
Depreciation cost per car = $40
As their are total of 300 cars ( 200 in short term + 100 in long term)
Total cost of depreciation of 300 cars = $40 × 300
= $12000
Total expences = $4500 + $460 + $12000
= $16960
Total average profit in a week = $52000 - $16960
= $35040