A hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

Question

a. No, because he may not be able to sell more services.
b. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.
c. Yes, because cutting hair is profitable.
d. It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients.

Answer 1

The most appropriate answer to the question of whether the hair stylist should expand is:

b. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

This option is correct because the decision to expand should be based on a comparison of the additional costs incurred (marginal costs) versus the additional revenue generated (marginal revenue) from serving more clients. If the marginal revenue exceeds the marginal cost, it would be beneficial to expand. If not, it may not be a wise decision to do so.