Relevant Costs for Decision Making.

Jason Wilson who operates a t-shirt concession at a local fair is considering opening a store in a local shopping center. He can rent space in the shopping center for $5,000 per month, and he estimates his utilities at $1,200 per month. If he rents the space, he can hire either two full time employees at $1,500 per month for each employee, or he can hire one full time employee for $1,500 and two part-time employees for $600 per month per employee.

Required:

a. Compute the monthly incremental cost of opening the store with two full-time employees.

b. Compute the monthly incremental cost of opening the store with one full-time and one part-time employee.

c. Jason opens the store with one full-time and one part-time employee, and it is very successful. It is so successful he is considering adding another full-time employee.

Compute the monthly incremental cost of adding the full time employee if the employee costs the same as the present full-time employee. Why is your answer different from question a in this exercise?