Question

Roger's World of Pets is considering adding cat grooming to the array of goods and services he currently provides. He estimates that consumers would be willing to pay $25 per cat for a 1 hr. cat grooming appointment. He also estimates that he would need 2 workers per cat (1 to hold the cat down and the other to groom the cat). Wages in this labor market are $15/hr. Using marginal analysis, Roger should:

Answer 1

Do not offer cat grooming

Step-by-step explanation:

Marginal cost = $30

Marginal Revenue = $25

According to the given situation Since marginal revenue is less than the marginal cost which decreases the profit. Here, we do not know about the rent as it is a fixed cost also we will not change if he wants to add further services.

Therefore, we will only consider the marginal benefits and cost of introducing the services. So Roger should not offer cat grooming.