The car rental market consists of two segments

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Reference no: EM132205781

Cheapest Car Rental rents cars at the Philadelphia airport. The car rental market consists of two segments: the short-term segment, which rents for an average of 0.5 week, 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 100 cars waiting to be cleaned. The average cost of this operation is $5 per car. Cars needing repairs spend an average of 2 weeks in the repair shop and incur an average 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. Assume that each car loses $40 in value per week because of depreciation.

Short-term renters pay $200 per week, while medium-term renters pay $120 per week.

Cheapest is considering two options for improvement.

a. Decrease time in repairs from 2 weeks to 1 week

b. Decrease cost per repair from $150 per car to $120 per car while keeping the flow time in repairs to 2 weeks.

If the effort required for each option is the same, which do you think is better? Explain why and show work to justify.

Reference no: EM132205781

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