Keely owns a hair salon. She gives her hairdressers two options for using her facility, equipment, and salon products: 1) they can pay Keely a flat "chair rental" of $1,200 per month or 2) they can pay her $5 per haircut plus 20% of their revenue. The hairdressers charge their customers $35 per haircut. The hairdressers incur no other expenses.
Requirements
1. At what point (number of haircuts per month) will the hairdressers be indifferent between the two payment options?
2. Because of the poor economic outlook, the hairdressers expect that people will wait longer between haircuts and start cutting their kids hair, rather than bringing them in for a trim. If volume is expected to drop below the indifference point, which payment option of the two described above will the hairdressers prefer?