Cheapest Car Rental rents cars at the Chicago airport. The car rental market con
ID: 390436 • 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 0.7 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 105 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
The short-term segment -0.7 weeks = 200 cars a week
Money received for Short Term rentals :
200 * 200 = USD 40000
The medium-term segment – 2.0 weeks = 100 cars a week
Money received for Medium Term rentals
100*120 = USD 12000
Total cars :300
Total defective: 60 cars
Total for repair = 60 cars = 60*150 = USD 9000
Total rentals received cars weekly = USD 40000+12000 =USD 52000
Cars need to be cleaned 300-60 = 240 cars
Cleaning Cost = USD 5 *240 = USD 1200
Loss in depreciation: USD 40 * 300 = USD 12000
So average profit = total rentals recd – repair cost-cleaning cost-loss in depreciation
= USD (52000-9000-1200-12000)
= USD 29800.