Assume exactly the same circumstances as in Activity 7.4, except that the garage is busy at the moment. If a mechanic undertakes the engine-replacement job, it will mean that other work the mechanic could have done during the seven hours, and which could have been charged to a customer, will not be undertaken. The garage’s labour charge is £60 an hour, although the mechanic is only paid £20 an hour.

What is the minimum price at which the garage should sell the car, with a reconditioned engine fitted, under these altered circumstances?

Data from Activity 7.4

A garage business has an old car that it bought several months ago. The car needs a replacement engine before it can be driven. It is possible to buy a reconditioned engine for £500. This would take seven hours to fit by a mechanic who is paid £20 an hour. At present the garage is short of work but the owners are reluctant to lay off any mechanics or even to cut down their basic working week. This is because skilled labour is difficult to find and an upturn in repair work is expected soon.

The garage paid £3,000 to buy the car. Without the engine it could be sold for an estimated £3,500. What is the minimum price at which the garage should sell the car with a reconditioned engine fitted?