Please Answer All A retired auto mechanic hopes to open a rustproofing shop. Cus
ID: 332143 • Letter: P
Question
Please Answer All
A retired auto mechanic hopes to open a rustproofing shop. Customers would be local new-car dealers. Two locations are being considered, one in the center of the city and one on the outskirts. The central city location would involve fixed monthly costs of $6,675 and labor, materials, and transportation costs of $24 per car. The outside location would have fixed monthly costs of $4,075 and labor materials, and transportation costs of $33 per car. Dealer price at either location will be $87 per car. a. Which location will yield the greatest profit if monthly demand is (1) 220 cars? (2) 320 cars? 220 cars : profit 320 cars: profit. (Click to select) yields the greatest Click to select) yields the greatest b. At what volume of output will the two sites yield the same monthly profit? Volume of output ?1carsExplanation / Answer
We know
Profit = (Price – Unit variable cost)*Quantity - Fixed cost
a)
Quantity = no of cars = 220 cars
Center of the city profit = (87-24)*220 – 6675 = $7185
Outside location profit = (87-33)*220 – 4075 = 7805
Outside location yields the greater profits
Quantity = no of cars = 320 cars
Center of the city profit = (87-24)*320 – 6675 = $13485
Outside location profit = (87-33)*320 – 4075 = $13205
Center of the city yields the greater profits
b)
By equaling the profits we get Quantity
(87-24)*Q – 6675 = (87-33)*Q – 4075
Q = 288.89 or 289 cars