Sadie owns a hair salon. She gives her hairdressers two options for using her fa

Question

Sadie owns a hair salon. She gives her hairdressers two options for using her facility, equipment, and salon products Option 1: they can pay Sadie $5 per haircut plus 20% of their revenue Option 2: they can pay a flat chair rental of $1,000 per month The hairdressers charge their customers $50 per haircut. The hairdressers incur no other expenses. At what point (number of haircuts per month) will the hairdressers be indifferent between the two payment options? OA. 100 OB, 20 OC. 193 O D. 67 O E. 91 Because of the poor economic outlook, the hairdressers expect that people will wait longer between haircuts and start cutting their kids hair, rather than bringing them in for a trim. If volume is expected to drop below the indifference point, which payment option will the hairdressers prefer? A. Option 1 O B. Option 2

Explanation / Answer

Option 1 per haircut revenue = 5+(50*20%) = $15 Indifference point = 1000/15 = 67 Option D is correct Option 2, flat rental of $1000 per month will be preferred in such situation

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