Question
Felice Kumla, the owner of the Kurma Hair Salon in downtown Halifax, has to decide whether to open a second shop in a suburban shopping
Felice Kumla, the owner of the Kurma Hair Salon in downtown Halifax, has to decide whether to open a second shop in a suburban shopping mall. If she does so, she would incur a monthly cost of $3,000 for the rental of a fully equipped hair salon and would have to sign a minimum one-year lease. Since Felice pays her employees on a commission basis, she estimates that each customer who comes to the store will provide a net return (contribution) to her of $3. She thinks it is most likely (about a 75% chance) that the suburban store will attract 1,000 customers a month, but there is a 10-percent chance that demand could be as low as 600 customers. On the upbeat side, she thinks there is a I5-percent chance of demand as high as 2,000 customers a month. Based on the experience of other salon owners, she believes that demand would not reach its full level until the third month of operation. The first two months would likely produce about half the sales of the other months, but would not be a good predictor of ultimate sales. Should Felice open the salon at the suburban mall?
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