Friday, November 9, 2012

Exercise 5-5: Long Run Costs and Economies of Scale

For this exercise I have to describe a business I might create.

If I was able to borrow $1,000,000.00 I would open a daycare and a party place for kids. This is a business I am most familiar with and would be able to work with.
For this kind of business I would need around 4-5 thousand sq. feet facility to accommodate big playground with slides, car racing, ball pit, games room. It will also have a kitchen, little bistro area for parents witch would work as a dining room for a daycare.
There will be two groups of children in a daycare and a party place on weekends. It would target market of parents that have kids ages 0-6. Demand for such a place is huge because in Calgary there is a huge gap on a market for party places and daycares.
Major costs will be: long run - a lease for the facility(fixed cost), loan payments for borrowed money(fixed cost), short run - salaries payable, cost of food, toys and other supplies, utility payments, maintenance payments, taxes.

I found a similar business that operates in Toronto, ON. They have the concept of combining daycare and a party place. The facility operates 7 days a week. They target market of kids ages 1-6. It's hard to determine their costs because it's a private facility but I can assume that costs for my imaginary business would be almost the same.
http://www.playlandltd.com/eng-partyplace/index.html

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