Quick Change and Fast Change are competing oil change businesses.


Question Description:

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Quick Change and Fast Change are competing oil change businesses. Both companies have 5,000 customers and currently make the same amount of profit. The price of an oil change at both companies is $20. Quick Change pays its employees on a salary basis, and its salary expense is $40,000. Fast Change pays it employees $8 per customer served. Suppose Quick Change is able to lure 1,000 customers from Fast Change by lowering its price to $18 per vehicle. Thus, Quick Change will have 6,000 customers and Fast Change will have only 4,000 customers. Select the correct statement from the following. Quick Fast Rev $100,0000 $100,000 Cost ( 40,000) ( 40,000) NI $ 60,000 $ 60,000 After Change Rev $108,000 $80,000 Cost ( 40,000) ( 32,000) NI $ 68,000 $48,000 Quick Change’s profit will remain the same while Fast Change’s profit will fall. Fast Change’s profit will fall but it will still earn a higher profit than Quick Change. Profits will decline for both Quick Change and Fast Change. Quick Change’s profit will increase, and Fast Change’s profit will decrease. None of the above.

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