QUESTION 2 [25 POINTS] Peter Parker owns a sports brokerage agency and sells tickets to major league baseball, football,

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Question 2 25 Points Peter Parker Owns A Sports Brokerage Agency And Sells Tickets To Major League Baseball Football 1 (107.01 KiB) Viewed 45 times

QUESTION 2 [25 POINTS] Peter Parker owns a sports brokerage agency and sells tickets to major league baseball, football, and basketball games. He also sells sports travel packages that include game tickets, airline tickets, and hotel accommodations. Revenues are commissions based as follows: Game ticket sales 8% commission Airline ticket sales 10% commission Hotel bookings sales 20% commission Monthly fixed costs include the following items: Advertising Rent Utilities Other costs $1,100 $900 $250 $2,200 There are no variable costs. A typical month generates the following sales amounts that are subject to the stated commission structure: Game tickets Airline tickets Hotel bookings $30,000 $4,500 $7,000

Required: 1. Determine Peter's normal monthly profit (loss). (5 points) The following questions are independent of each other: 2. Peter estimates that airline bookings can be increased by 40% if he increases advertising by $600. Should he increase advertising? Justify your answer. (5 points) 3. Peter's friend, Mary Jane (MJ), has asked him for a job in the travel agency. MJ has proposed that he be paid 50% of whatever additional commissions he can bring to the agency plus a salary of $400 per month. Peter has estimated that MJ can generate the following additional bookings per month: Game tickets $10,000 Airline tickets $1,500 $4,000 Hotel bookings a) Advise Peter as to whether he should hire MJ or not and justify your answer. (5 points) b) Regardless of your answer above, assume that Peter hired MJ. In the first month of his employment, MJ generated an additional $9,000 of bookings for the agency. The bookings, however, were all airline tickets. Was the decision to hire MJ a good one? Justify your answer. (5 points) 4. Suppose Peter's commission structure is changed into a single percentage of 12% for all types of sales. Would Peter be better off under this new structure or not? Justify your answer. (5 points)