Cheapest Car Rental rents cars at the Chicago airport. The car rental market con
ID: 390540 • 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
Avg. Vehicles rented = 200x0.8 for short term = 160
100x0.8 for long term = 80
weekly productivity of short term vehicles = 160 x rent per week
weekly productivity of long term rented vehicles = 80 x rent per week
Cost of cleaning operations per week = 92x5 = 460 ( assuming that the average cars waiting is for week)
Cost incurred in repairs per week = 150/2 x 60 =4500
Cost pf depreciation per week = 40x300 =12000
Income from rent = 160x200 + 80x120 = 32000+9600 = 41600
Expenses = 460+4500+12000 =16960
Profit = 24640