Which strategy is likely to be more profitable

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Reference no: EM132292360

A local car rental agency maintains a fleet of seven passenger vans. They found if the daily rental charge is around $30 they have approximately 90 van reservations in a month. On the other hand, if the daily rental charge is around $50 they get approximately 60 reservations in a month. For the sake simplicity, we can assume that the average duration of reservation is 2 days and the demand is linear. If a van is rented the average daily operational cost (including depreciation) to the agency is $15. The rental agency is thinking of two pricing strategies. As per the first strategy they will charge all customers $40 daily. As per the second strategy they will charge some customers (as many as possible) $70 daily and some others (as many as possible) $20 daily.

Which strategy is likely to be more profitable? Calculate potential average monthly profits for each of the two strategies separately and justify your recommendations.

Reference no: EM132292360

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