Kaitlin and her husband Tom own and operate a beauty salon. Currently, since they need to take care of their two kids, they open the shop only from 8 a.m. to 12.00 p.m. They are thinking of opening the shop for a few extra hours after 12:00 p.m. They face a fixed cost of $1,500 per month (rent to the property owner, payment to the bank, and insurance premium). Assume that the revenues from additional hours of operation decline as most people go home in afternoons and evenings. On the other hand, the costs of running the shop for additional hours increase as they must hire a babysitter for the kids and a worker to serve the customers at the shop. These workers ask for overtime rates as they work extra hours. The graph above shows the marginal costs and benefits of running the shop for additional hours. According to the theory of rational economic behavior, the couple should open the shop for 1 additional hours. The variable cost associated with these hours equals dollars. Suppose that the property owner increases the rent by $500 to $2,000 per month. Now, the couple will open the shop by an additional 2 hours. $80 $75 MB $70 MC $65 $60 $55 $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 0 1 2 3 4 5 6 7 8 9 10 Hours
Kaitlin and her husband Tom own and operate a beauty salon. Currently, since they need to take care of their two kids, they open the shop only from 8 a.m. to 12.00 p.m. They are thinking of opening the shop for a few extra hours after 12:00 p.m. They face a fixed cost of $1,500 per month (rent to the property owner, payment to the bank, and insurance premium). Assume that the revenues from additional hours of operation decline as most people go home in afternoons and evenings. On the other hand, the costs of running the shop for additional hours increase as they must hire a babysitter for the kids and a worker to serve the customers at the shop. These workers ask for overtime rates as they work extra hours. The graph above shows the marginal costs and benefits of running the shop for additional hours. According to the theory of rational economic behavior, the couple should open the shop for 1 additional hours. The variable cost associated with these hours equals dollars. Suppose that the property owner increases the rent by $500 to $2,000 per month. Now, the couple will open the shop by an additional 2 hours. $80 $75 MB $70 MC $65 $60 $55 $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 0 1 2 3 4 5 6 7 8 9 10 Hours
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:Kaitlin and her husband Tom own and operate a beauty salon. Currently, since
they need to take care of their two kids, they open the shop only from 8 a.m. to
12.00 p.m. They are thinking of opening the shop for a few extra hours after
12:00 p.m. They face a fixed cost of $1,500 per month (rent to the property
owner, payment to the bank, and insurance premium). Assume that the
revenues from additional hours of operation decline as most people go home in
afternoons and evenings. On the other hand, the costs of running the shop for
additional hours increase as they must hire a babysitter for the kids and a
worker to serve the customers at the shop. These workers ask for overtime
rates as they work extra hours. The graph above shows the marginal costs and
benefits of running the shop for additional hours. According to the theory of
rational economic behavior, the couple should open the shop for
1
additional hours. The variable cost associated with these
hours equals
dollars.
Suppose that the property owner increases the rent by $500 to $2,000 per
month. Now, the couple will open the shop by an additional
2
hours.
Transcribed Image Text:$80
$75
MB
$70
MC
$65
$60
$55
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
0
1
2
3
4
5
6
7
8
9
10
Hours
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