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Microeconomics

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Profit Maximizing: Choosing a Location

MICRO-DBJV0S

Choice Locations, a travel agency, is choosing which location to set up its office. Sunburg has really skilled travel agents – only one agent needs is required to set up a vacation package. However, because the travel agents are so skilled, they can be a little costly; the wage of a Sunburg travel agent is \$100.

The other location choice for Choice Locations is Brrville, which has not-so-skilled travel agents – 3 agents are needed to set up a vacation package. Brrville travel agents know they are not so good, so they do not charge as much as the Sunburg travel agents; a Brrville travel agent’s wage is \$50.

Assume there are no other costs to setting up and operating Choice Locations, the revenue from setting up a vacation package is the same between the two locations (\$200), and that they will sell the same amount of vacation packages in each location.