Airport Rent-a-Car is a locally operated business in competition with several major firms. ARC is planning a new deal for prospective customers who want to rent a car for only one and will return it to the airport. For $35, the company will rent a small economy car to a customer, whose only other expense is to fill the car with gas at day's end.ARC is planning to buy a number of small cars from the manufacturer at a reduced price of $6,300. The big question is how many to buy, Company executives have decided on the following distribution of demands per day for the service.
| Number of cars rented | 13 | 14 | 15 | 16 | 17 | 18 |
| Frequency | 0.08 | 0.15 | 0.22 | 0.25 | 0.21 | 0.09 |
The company intends to offer the plan 6 days a week (312 days per year) and anticipates that its variable cost per car per day will be $2.50. After the end of one year, the company expects to sell the cars and recapture 50 percent of the original cost. Disregarding the time value of money and any noncash expenses, use the expected-loss method to determine the optimal number of cars for ARC to buy.
Solution
