Norman Horn owns a small travel agency. His revenues are based on commissions earned as follows:

Airline bookings 8% commission

Rental car bookings 10% commission

Hotel bookings 20% commission

Monthly fixed costs include advertising ($1,100), rent ($900), utilities ($250), and other costs ($2,200). There are no variable costs.

During a normal month, Norman records the following items, which are subject to the above commission structure:

Airlines............ $30,000

Cars................ 4,500

Hotels............. 7,000

Total.............. $41,500

Norman is concerned because he is experiencing a monthly loss.

a. What is Norman's normal monthly income?

b. Norman can increase his airline bookings by 40 percent with an increase in advertising of $600. Should he increase advertising?

c. Norman's friend Jeff has asked him for a job in the travel agency. Jeff has proposed that he be paid 50 percent of whatever additional commissions he can bring to the agency plus a salary of $300 per month. Norman has estimated Jeff can generate the following additional bookings per month:

Airlines.............. $10,000

Cars................. 1,500

Hotels.............. 4,000

Total............... $15,500

Hiring Jeff would also increase other fixed costs by $400 per month. Should Norman accept Jeff's offer?