Question

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand? a. No, because he may not be able to sell more services. b. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients. c. Yes, because cutting hair is profitable. d. It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients.

Answer 1

Answer:

B. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

Explanation:

As the barber is currently cutting hair for 50 clients per week and earns a profit. He is now considering expanding his operation in order to serve more clients. He should expand his business by considering the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients. Marginal revenue and marginal cost has much importance here in order to make the decision. Marginal revenue is the profit which is obtained by selling one extra unit, here serving one more additional customer, whereas, the marginal cost is selling that one extra or additional unit/serving the customer. In this particular case, if the marginal revenues are greater than the marginal costs then he should definitely expand his operations, which means that move will bring more profits to his business.