Question

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. The cost to DeShawn to perform his basic detailing package is $40, and he charges a price of $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. A. What is DeShawn's marginal benefit if he sells a basic detailing package?
B. What is the marginal cost of adding the engine detailing to the basic detailing package?
C. Should DeShawn continue to offer the engine detailing service?

Answer 1

Answer:

A. What is DeShawn's marginal benefit if he sells a basic detailing package?

• marginal benefit = marginal revenue - marginal cost = $75 - $40 = $35

B. What is the marginal cost of adding the engine detailing to the basic detailing package?

• $20

C. Should DeShawn continue to offer the engine detailing service?

• Yes. From an economic point of view, a firm maximizes its accounting profit when marginal revenue = marginal cost, and since DeShawn's marginal cost is still much lower than his marginal revenue, he should continue to offer it. From a marketing point of view, this premium service (it is more expensive) may be something that a certain percent of DeShawn's clients want and if he quitted that service he might lose the clients.