Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should

Question

Quizplus · Accepted Answer

Bill's fixed costs are $1,000 per month for the loan payment. Each boat rental brings in $200 in revenue but incurs a variable cost of $50, resulting in a profit of $150 per rental ($200 - $50 = $150) and a total profit of $1,500 per month ($150 x 10 = $1,500). As long as Bill rents at least 1 boat per month, he will cover his fixed cost and make a profit. Therefore, he should operate his business as long as he rents at least 1 boat per month.

Bill Operates a Boat Rental Business in a Competitive Industry