Reference no: EM133328403

Question: Frank Barcellona runs a miniature golf course in Elk Grove, CA. He rents the course and equipment from a large recreational supply company and supplies his own labor. His monthly earnings, net of rental payments, are $800 and he considers working at the golf course just as attractive as his only other alternative, which is to work as a grocery clerk for $800/month. Now Frank learns that his Uncle Ross has died and has left him some land in San Francisco (a parcel between Market Street and California Street). The land has been cleared, and Frank discovers that a construction company is willing to install and maintain a miniature golf course on it for a payment of $4,000/month. Barcellona also commissions a market survey, which reveals that he would collect $16,000/month in revenue by operating the miniature golf course there (after all, there are many more potential golfers in San Francisco than in Elk Grove). After deducting the $4,000/month payment to the construction company, this would leave him with $12,000/month free and clear. Given these figures, and assuming the cost of living is the same in San Francisco as in Elk Grove, should Barcellona, a profit maximizer, switch his operation to San Francisco?