Question
In: Operations Management
The auto insurance industry estimates that it costs three times the original purchase price (in parts...
The auto insurance industry estimates that it costs three times the original purchase price (in parts and labor) to reconstruct a wrecked automobile. Why do you believe there is such a large discrepancy?
Solutions
Expert Solution
When initially producing an automobile, they produce in bulks and standard procedures are followed. They realise economies of scale when producing a new automobile. In case of wrecked automobile, each wrecked automobile is different. Each case has to be dealt differently. The procedures would also be costly.Also, when parts are purchased in less quantities, they cost more. Also, when an automobile out of market, it is difficult to obtain its parts. An automobile generally is wrecked after using for certain number of years. There is a high chance that the company is no longer manufacturing that particular model. In such cases, its parts are not easily available and obtaining them would be costlier.
keosha answered 2 years agoRelated Solutions
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