Joe "Mr Clean" Smith Is Planning to Start a New Service

question 41

Multiple Choice

Joe "Mr. Clean" Smith is planning to start a new service for his car wash company. Previously, everyone who wanted his or her car washed had to come to Joe's business, Mr. Clean Car Wash. He and his staff have decided that there is a substantial market for people who would want to have their car washed at their home. After considerable market research the following daily demand equations have been determined.
Car washes done at Mr. Clean:
Q_c = 550 - 25P_c, so that MR_c = 22 -.08Q_c
Car washes done at home:
Q_h = 95 - 2.5P_h, so that MR_h = 38 - .8Q_h,
Q_c = the number of car washes per day done at Mr. Clean
Q_h = the number of cars washes done at people's homes.
MC = $6.00 for both in-house and at-home car washes and is constant
How many car washes must be sold at Mr. Clean and at-home in order to maximize profit?

• A) Mr. Clean = 100, At Home = 20
• B) Mr. Clean = 100, At Home = 40
• C) Mr. Clean = 200, At Home = 20
• D) Mr. Clean = 200, At Home = 40
• E) Mr. Clean = 300, At Home = 60

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Definitions:

Marginal Cost

The surplus cost attributed to generating one more unit of a product or service.

Production Function

A mathematical representation showing the relationship between input factors and the output of goods or services.

Competitive Markets

Markets characterized by many buyers and sellers, where no single participant has significant influence on price or product offerings.

Fixed Costs

Costs that do not vary with the level of output production, such as rent, salaries, and insurance.