What are her fixed and variable costs

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Reference no: EM132401024

Production and Cost:

Linda just started a dog grooming business out of her garage. She had the garage remodeled with a studio and a waiting area for customers which cost $8,000. Her other costs include $500 for grooming equipment, $20 per bottle for dog shampoo, monthly electricity and water bills and $150 for a city permit to operate a business out of her house.

A.) What are her fixed and variable costs? Explain why you categorized the costs the way you did.

B.) Linda can groom 10 dogs each day and she is considering hiring a second groomer. Describe the circumstances in which hiring the second groomer increases the output of dogs per day to 22. Suppose she then adds a third groomer expecting that she could groom 34 dogs per day, but it turns out she can only groom 28. Why might that occur? What is this called?

C.) Suppose in the first year her total revenues were $85,000 and her total costs. as identified in the question, were $50,000. To start this business, however, she had to quit her job as a veterinary assistant that paid $40,000 a year. What is the accounting profit from the business? What about the economic profit? If these two are different, explain why.

D.) Suppose that in the second year her average total cost per dog is $35 and that $20 of that is associated with the variable cost. She finds that the market price for dog grooming has fallen, however, to $30 per dog. Should she stay open or close the business?

Reference no: EM132401024

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