Question

PROBLEM

Mabel is currently working as a swim instructor earning $40,000 per year. Her career goal was to own and operate a swim facilityteaching kids and young adults. When the local swim facility in town was offered for sale, Mabel decided to buy the facility.

The facility has a 25 x 50 feet pool, just the right size for swim instruction and comes with a small locker room, bathroom and parking lot. No private bathing stalls are available but an open shower area accommodates 3 persons for pre and post swim rinse. The facility is located in City X, in State Y. City X is has a robust city center and a relatively long history of middle class suburb. The facility came with TWO full- time instructors and ONE full time maintenance staff.

The swim package is for 3 lessons per week for 45 minute per lesson (see SWIM CLASS SCHEDULE below). The pool accommodates 2 lanes for two separate lessons to be run at the same time. Currently, each lane holds 5 students.

The pool schedule is currently fully booked and Mabel concludes, based on a parent survey that parents are happy with the instructors and the personal attention that the students receive. However, they recommend more investment in lockers and better bathroom facilities.

Mabel knows that her competitors for student lessons are the local gymnastic programs, soccer programs, and other athletic programs in the area. She is eager to invest in the facility, but she us unsure on how to pay for the upgrade and grow her business.

• Can she add one more student in each lesson?

• Would it crowd each lane and reduce the quality of instruction?

• What would be the impact of providing personal attention to each student?

Mabel estimates that the investments in lockers and bathroom facilities will require $50,000 in new investment. A loan for the amount would add an additional $750 monthly for 5 years. Mabel is business minded and wants to make investment decisions through a rational and thoughtful process based on hard financial numbers and “soft” relational aspects. She is also worried that her human cognitive biases may get in the way of her decisions.

QUESTIONS:

1. What decision making concepts have you learned in this class that would assist Mabel make rational decisions?

2. Create a table / spreadsheet of fixed and variable costs per month based on Monthly Table of Financial Data. Explain your classification for each item.

3. Does the Monthly Table of Financial Data show the Economic profit per month? If not calculate the monthly economic profit or loss.

4. Acting as Mabel, what financial data will you need to make the decisions?

5. Create a spreadsheet that will help Mabel make the decision on adding an additional student to each lesson.

6. What cognitive biases should Mabel be on the lookout during the decision making process? Explain your reasoning.

7. Are there other alternative choices that Mabel could consider? Make sure to explain likely marginal costs and benefits of the alternatives you mention.

8. Briefly on your learning of rational decision making and its twin human cognitive biases, what are your conclusions on human ability to make rational decisions?

PRICE PER STUDENT (3 LESSONS PER WEEK): $300 per month.

SWIM CLASSES SCHEDULE

Based on the swim schedule, the facility instructs 18 cohorts of students in each lane, for a total of 90 students (3 lessons per week; 5 students in each lane). You can check this based on the swim class schedule below.

Week days
	3:30	5:15
	5:30	6:15
	6:30	7:15
Saturday
	9:00	9:45
	10:00	10:45
	11:00	11:45
	12:00	12:45
	3:00	3:45
	4:00	4:45
Sunday
	9:00	9:45
	10:00	10:45
	11:00	11:45
	12:00	12:45
	3:00	3:45
	4:00	4:45

MONTHLY Table of Financial Data

Revenue		$      27,000
Salary and benefits (2 instructors)		$   7,500
Maintenance Staff		$   3,750
Monthly Pool Materials		$   1,000
Utilities		$    3,000
Insurance		$   600
Marketing & Website		$   300
Cleaning and Other		$   2,000
Mortgage expenses		$   3,000
Total Expenses		$   21,150