Question

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 out each boat to his customers for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should:

1. operate his business as long as he rents at least 7 boats per month.2. operate his business as long as he rents at least 1 boat per month.3. operate his business as long as he rents all 10 boats each month.4. raise the price he charges per boat rental.

Answer 1

The answer is: 2) operate his business as long as he rents at least 1 boat per month.

Step-by-step explanation:

Since Bill doesn't have any fixed costs, then he should continue to work as long as he can rent at least 1 boat per month. The break even point is calculated by dividing the total fixed costs over contribution margin per unit, but since the total fixed costs equal 0, then any boat rented will be over the break even point.