Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. Max's explicit cost amounts to $3,000 per month more than his revenue. Should Max continue operating his business? a. This cannot be determined without information on his revenue. b. Max should continue to run the tattoo parlor until his lease runs out. c. Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. d. If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business.

Question

Business

Dylan Cole

9 July, 14:51

Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. Max's explicit cost amounts to $3,000 per month more than his revenue. Should Max continue operating his business? a. This cannot be determined without information on his revenue. b. Max should continue to run the tattoo parlor until his lease runs out. c. Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. d. If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business.

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Answers (1)

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Cruella · Answer 1

Max should continue to run the tattoo parlor until his lease runs out.

Explanation:

When there exists a contract between the two parties in which one party will agree to pay a rent for the property of the other party refers to the term leasing. The contract has two important terms such as Lessee who uses the property and pays the rent and Lessor who is the owner of the property. The Lessee will pay the rent to the Lessor as long as he uses the property of Lessor.

In the given example, a tattoo parlor was taken lease by Max Shreck. The remaining period for the lease is 5 years and he gets $3,000 which is the explicit cost and it is more tha the revenue. He also needs to pay $4,000 to the lessor. In this situation it is better for Max to continue to run the tattoo parlor until his lease runs out.