Question
A car rental service has a current fleet size of 8 and the daily demand is normally distributed with an average of 8. The daily
A car rental service has a current fleet size of 8 and the daily demand is normally distributed with an average of 8. The daily rental rate is $400/day. The owner feels that they are missing out on money by not having more cars. There is a variation in demand. A standard deviation of 4. So he is missing out on upside variation in demand. He feels that they should start tracking the daily requests for cars rather than the number of cars rented out to better understand the daily demand for cars. At the same time, he is also not sure about having more cars in the fleet as each car costs $50/day in leasing costs, $15/day in insurance, and $10/day in maintenance. If there are more cars, the downside variation will affect the company. There is also another parameter to examine, the loss of goodwill if a customer is turned away which is $200. Please answer the following questions in the form of a decision tree: 1) How many cars should the company have in their fleet? Ignore the loss of goodwill for this. 2) How many cars should the company have in their fleet if we include the loss of goodwill?
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