Haley

Dear Stanley,

In an effort to increase your demand, the use of the advertising company of an additional $600 a month would result in an increase of 9.5% demand. This alone would increase your operating net income by $7,848. In addition, our analysis of potential service expansion from hiring a 6th barber full time, yields a positive growth in net income as well. Alternatively, eliminating a barber at this time would decrease your operating income of around $8,000. This barber would allow for growth during the week adding service availability to potential clientele along with solving the issue with unreached excess demand on Saturdays. The current practical capacity of your shop is 50% greater than current conditions; therefore the 6th barber would help to lessen that gap. The 6th barber along with the increase form advertising would result in a demand increase to 31,080 haircuts per year from your current 24,000. A potential price increase of 1% to $12.12 would decrease demand to 30,840 total, however this decrease in demand would be offset by the price change resulting in an increase of around $1,508 of net income. In conclusion the best potential for growth would come from an increase in advertising costs of $600 a month with an increase in your haircut price to $12.12. Regarding your concerns about the imposed head tax, the shop’s services will remain a “necessity”. The loyalty you noted pertaining to each barber will outweigh the 5% tax imposed on clients. The new customers attracted by advertising will not have experienced a price prior to head tax being imposed therefore resistance is less likely.

When considering the opportunity to add manicure services to the shop it is important to discuss the incremental effects on net income to the first year of operations. The manicure services will not turn a profit until December of the year added. However, once maximum production is reached manicure services will contribute another $492.00 of operating net...