George owns a small business renting out bicycles in Detroit. He rents each bike for $5 a
Question:
George owns a small business renting out bicycles in Detroit. He rents each bike for $5 a day. After a year, his rental bikes are worn out and basically worthless. So each year George gives his old bikes to a local charity and replaces his entire fleet of bikes. George buys his bikes from a local manufacturer at the discounted price of $500 each.
George has estimated the following probability distribution of the number of bikes he can expect to rent on any given day:
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After George rents out a bike, he has to clean and tune it before he can rent it out again. The average cost of this maintenance is $2 per bike. This includes the cost of materials and the opportunity cost of George's time.
George's store is open five days a week year round, except during a four-week period each January when he goes skiing.
How many bikes should George buy each year to maximize his expected profit?
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most... Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...
Step by Step Answer:
Cost price 50000 Days per week 5 Revenue per bike 500 Number of weeks per year 48 4 weeks off Cost of maintenance 200 Days open per year 240 Number of Bikes rented per day Probability 10 01 11 025 12 ...View the full answer
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe
