Economics Question #3

Last week’s question: Why do new cars costing $8,000 rent for $25 a day, while morning suits costing only $250 rent for around $45?

There are again multiple factors. The big rental groups buy new cars in high volumes and apparently they can sell them for 75% of the original price. Suit rental shops tend to be locally owned and so they cannot enjoy the same advantages for buying in bulk. There is no important resale market so they have to cover more or less all the cost of the suit. Another important advantage for the car rental companies is that their product is used every day of the week while suits tend to be taken out on Saturdays. Car rental companies can make significant profits with add-ons such as insurance or what they charge you if you don’t fill up the petrol tank. Finally a suit may have to be altered to fit the customer. Also each suit must be dry-cleaned before it can be rented out again. Obviously a car will have to be hosed down but this is much cheaper and represents a fraction of the cost of the car.

This week’s question is: Why do theatres discount prices on spare tickets just before a performance whereas airlines and rail companies raise prices for last minute customers?


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