Clockwork, a startup in San Francisco, has built a robot that paints nails in under ten minutes. The robot has a 3D camera with which it takes pictures of each nail to build a 3D map of the nail. Then the robot's artificial intelligence system uses those 3D maps to figure out where the edges of each nail are so that it can paint within those areas. The robot cannot trim or shape nails, nor can it remove polish. It cannot do gel finishes or nail art. When a robot is being used in a salon, appointments are scheduled for ten minutes, with ten-minute windows between customers to allow for robot sanitization. A single Clockwork robot, then, can paint nails for three customers per hour. The Clockwork robots are available for purchase or lease by salons, spas, hotels, and other businesses.

Questions 1. A hotel spa offers nail painting services to its guests. A manicurist is paid $20 per manicure by the hotel and can perform paint nails for one customer per hour. The manicurist is self-employed. The manicurist does not work or get paid if there are no manicure appointments. Would the cost of the manicurist be a fixed cost or a variable cost for the hotel spa? 2. Assume a hotel spa leases a Clockwork nail-painting robot. Would the cost of the robot be a fixed cost or a variable cost for the hotel spa? 3. If the hotel spa only has a few guests wanting manicure appointments each week, would it be more likely to use a manicurist or invest in a Clockwork nail- painting robot? Explain your answer.

4. If the hotel spa replaces its manicurist by purchasing a nail-painting robot, would its breakeven point (for the nail-painting operation) increase or decrease? 5. Define operating leverage. If the hotel spa invests in a nail-painting robot, would the hotel's nail-painting business be likely to have high operating leverage or low operating leverage? Explain.