Luxury Fleet Operates a Fleet of Limousines

question 7

Multiple Choice

Luxury Fleet operates a fleet of limousines.It is currently considering replacing them with a new model.It plans to evaluate options based on the following information:
Which of the four following options should management choose?

• A)Replace the old limousines now with the standard limousines and operate for seven years,replaced in perpetuity.
• B)Replace the old limousines in three years' time with the standard limousines and operate for seven years,replaced in perpetuity.
• C)Replace the old limousines in three years' time with the deluxe limousines and operate for nine years,replaced in perpetuity.
• D)Replace the old limousines now with the deluxe limousines and operate for nine years,replaced in perpetuity.

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Definitions:

Incomplete

Characterizing something as not fully finished, lacking some parts, or not comprehensive.

Transitive

A relation is described as transitive if, whenever it relates some A to B and B to C, it also relates A to C.

Marginal Rate of Substitution

The rate at which a consumer is willing to give up one good in exchange for another good while maintaining the same level of utility or satisfaction.

Perfect Substitutes

Two goods for which consumers are completely indifferent as to which to consume, meaning the consumption of one good can fully replace consumption of the other.