The question comes out of my "Practical Operations Management's" textbook.  Tube Country rents circular rubber rafts that its customers use to float down the Ichituckni River. Tube Country owns a fleet of 200 rafts, each of which is returned on the same day it is rented, and each raft can only be rented once during a business day. Rough water along the Ichituckni River often causes rafts to become scratched and leak air, so the staff at Tube Country is constantly repairing rafts before their next rental. As a result, Tube Country estimates that 5% of its rental fleet is unavailable for rent at any given time. Tube Country rents rafts for $5 each, and incurs $1.00 in variable costs with each raft rental. Tube Country must also pay $20,000 in fixed business costs annually. How many rentals does Tube Country need to break even each year? How many rentals does Tube Country need to make in a year to earn $5,000 in profit? Last year, the owner of Tube Country, Mr. Robert “Bobber” Gowdy, had the opportunity to acquire an additional 200 rafts for his rental fleet, when a competing raft rental company went out of business. Instead, Bobber Gowdy decided to keep his fleet at its original size of 200. “Even though we often rent every raft on a busy day,” he said, “it wouldn’t have been worth it, increasing the fleet size to 400. If you have any more than 200 rafts rented, you can’t fit all of your rafts on the truck when you are collecting them back from the Ichituckni River. That means you then have to make multiple trips to the river. This costs more and takes more time, and the folks who run Ichituckni River State Park also charge you penalties for leaving your rafts around. Basically, if you get greedy and rent more than 200 rafts, you’ll actually wind up making a lot less money.” What Bobber Gowdy has just explained can best be described as what?

Question

The question comes out of my "Practical Operations Management's" textbook. 

Tube Country rents circular rubber rafts that its customers use to float down the Ichituckni River. Tube Country owns a fleet of 200 rafts, each of which is returned on the same day it is rented, and each raft can only be rented once during a business day. Rough water along the Ichituckni River often causes rafts to become scratched and leak air, so the staff at Tube Country is constantly repairing rafts before their next rental. As a result, Tube Country estimates that 5% of its rental fleet is unavailable for rent at any given time. Tube Country rents rafts for $5 each, and incurs $1.00 in variable costs with each raft rental. Tube Country must also pay $20,000 in fixed business costs annually.

  1. How many rentals does Tube Country need to break even each year?
  2. How many rentals does Tube Country need to make in a year to earn $5,000 in profit?
  3. Last year, the owner of Tube Country, Mr. Robert “Bobber” Gowdy, had the opportunity to acquire an additional 200 rafts for his rental fleet, when a competing raft rental company went out of business. Instead, Bobber Gowdy decided to keep his fleet at its original size of 200. “Even though we often rent every raft on a busy day,” he said, “it wouldn’t have been worth it, increasing the fleet size to 400. If you have any more than 200 rafts rented, you can’t fit all of your rafts on the truck when you are collecting them back from the Ichituckni River. That means you then have to make multiple trips to the river. This costs more and takes more time, and the folks who run Ichituckni River State Park also charge you penalties for leaving your rafts around. Basically, if you get greedy and rent more than 200 rafts, you’ll actually wind up making a lot less money.” What Bobber Gowdy has just explained can best be described as what?

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