Hard Nails and Bright Nails are competing nail salons.Both companies have the same number of customers.Both charge the same price for a manicure.The only difference is that Hard Nails pays its manicurists on a salary basis (i.e.,a fixed cost structure)while Bright Nails pays its manicurists on the basis of the number of customers they serve (i.e.,a variable cost structure).Both companies currently make the same amount of net income.If sales of both salons increase by an equal amount,Hard Nails:
A) will earn a higher profit than Bright Nails.
B) will earn a lower profit than Bright Nails.
C) will earn the same amount of profit as Bright Nails.
D) The answer cannot be determined from the information provided.

Question

Quizplus · Accepted Answer

Hard Nails has a fixed cost structure, so its costs do not increase with more customers, leading to higher profits with increased sales. Bright Nails' costs increase with more customers, so its profit increase is less.

Hard Nails and Bright Nails Are Competing Nail Salons