Question

You run a school in Florida. Fixed monthly cost is $6000 for rent and utilities, $5000 is spent in salaries and $1000 in insurance. Also every student adds up to $90 per month in stationary, food etc. You charge $700 per month from every student now. You are considering moving the school to another neighborhood where the rent and utilities will increase to $10000, salaries to $6000 and insurance to $2000 per month. Variable cost per student will increase up to $150 per month. However you can charge $1000 per student. At what point will you be indifferent between your current mode of operation and the new option?

a) 30

b) 20

c) 25

d) 40

Answer 1

Set profit equal for both options.

Current profit = (700 - 90)n - (6000+5000+1000) = 610n - 12000.
New profit = (1000 - 150)n - (10000+6000+2000) = 850n - 18000.

Solve 610n - 12000 = 850n - 18000:
-240n = -6000 → n = 25.

Answer: c) 25.