As the Owner of a Rent-A-Car Agency You Have Determined

question 61

Essay

As the owner of a rent-a-car agency you have determined the following statistics:
The gross profit is $40 per car per day rented.When there is demand for a car when none is available there is a goodwill loss of $80 and the rental is lost.Each day a car is unused costs you $5 per car.Your firm initially has 4 cars.
$$\begin{array} { c c c c } \begin{array} { c } \text { Potential } \\\text { Rentals Daily }\end{array} & \text { Probability } & \begin{array} { c } \text { Rental } \\\text { Duration }\end{array} & \text { Probability } \\\hline 0 & .10 & 1 \text { day } & .50 \\1 & .15 & 2 \text { day } & .30 \\2 & .20 & 3 \text { days } & .15 \\3 & .30 & 4 \text { days } & .05 \\4 & .25 & &\end{array}$$ a. Conduct a 10 -day simulation of this business using Row #1 bel ow for demand and Row #2 below for rental length.



b. If your firm can obtain another car for $\$ 200$ for 10 days, should you take the extra car?

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Definitions:

Sunk-Cost Fallacy

Misguided reasoning that further investment is warranted on something simply because the resources already invested will otherwise be lost, without regard for future costs and benefits.

Limited Problem Solving

A decision-making process characterized by a consumer engaging in minimal search and deliberation, usually applied to familiar and low-stakes purchases.

Lower-Income

Describes individuals or families that earn significantly less money than the average for their society or community.

Affluent

individuals or groups characterized by having a significant amount of wealth and resources at their disposal.