A vendor at the Minnesota State Fair reportedly makes a $100,000 profit over the
ID: 2470547 • Letter: A
Question
A vendor at the Minnesota State Fair reportedly makes a $100,000 profit over the course of the Minnesota State Fair selling hot. freshly baked chocolate chip cookies. The vendor had been selling at this state fair for over twenty years and it was all she did for the year. She ran a pretty big operation with numerous employees. The Minnesota State Fair is one of the nation's largest and best-attended agricultural and educational entertainment events. The 2003 Minnesota State Fair runs from Thursday. Aug. 21 through Labor Day, Sept. 1 (12 days). Fairground gates (ticket booths) are open from 6 a.m. to 10 p.m. (8 p.m. on Labor Day). A fair license application is attached. A New Firm Looks ft Tap into Economic Profits Two executives dccide to go into the festival cookie selling business. They hope to replicatc the profits of the Minnesota v endor by selling cookies at fairs in Illinois. They spend $10,000 on equipment, including two stainless steel tables, an oven, a warmer, a cooling rack, a refrigerator and a trailer. They then submit applications to several fairs in their first summer. About the Entrepreneurs The two entrepreneurs hold full-time jobs in Illinois and will operate Cookie-Daze during the summer on weekends and using their vacation time. They will use the uncompensated labor of three family members on festival days during the first summer. The first entrepreneur earns about S40.000 annually, holds an undergraduate business degree, and operated his own bar as a collcge student. The sccond entrepreneur, somewhat older, earns about SI60,000 annually and holds both an engineering degree and an MBA. The New Market Unlike the Minnesota State Fair, the smaller fairs that Cookie-Daze enters charge a fixed entry fee and run for a shorter duration. This requires more time setting up and transporting the heavy equipment. A typical entry fee for Cookie-Daze is SI000 per day for a relatively big festival. The festival officials assign locations to vendors that are to some extent dependent on vendor's tenure with the festival. Better locations are awarded to longtime festival participants. The festival also agrees with vendors on exactly what products will be sold. Cookie-Daze can be assured that no other freshly baked cookie vendors will attend festivals in which they participate. Of course, many others food items will be sold, such as soft ice cream, fried dough, deep fried Snicker's bars, cotton candy, frozen chocolate bananas, pizza, hamburgers, etc. Also, unlike the Minnesota State Fair, the smaller fairs in Illinois are not selective in the vendors they admit to the fair because there is not an oversupply of vendors. Cookie-Daze is able to secure entry into the four festivals to which it applies. Questions How much can these entrepreneurs expect to make per hour? What do you predict regarding their economic profit?Explanation / Answer
As the entrepreneurs hope to replicate the the profits of the Minnesota Vendor, their expected profit per hour would be the same as that vendor
Number of days the Minnesota State Fair runs 12 Number of hours worked per day, i.e., 6 AM to 10 PM 16 Total Hours 192 Less: 2 Hours less worked on Labor Day 2 Actual Hours for which the Vendor worked 190 Profit earned in 190 Hours $100,000 Profit earned per hour $100,000/190 $526.32 approx