1. Citywide Spirits Shoppe: Student Coaching Slides
Glen Whitman
& Shahid Ansari

2. Basic Facts of the Case
New state law allows liquor stores to stay open until 4 a.m.
Store currently stays open until 10 p.m.
Based on her research, Janice Wilton recommended extending hours until 4 a.m.
Ted Radcliff asked Wilton to check her analysis and revise her recommendations if necessary.

3. Economics Background
Concept: Using marginal cost (MC) and marginal revenue (MR) to make profit-maximizing decisions
MC = additional cost from doing one more of something
MR = additional revenue from doing one more of something
Do more when MR > MC. Do less when MR < MC. This will maximize profits.

4. Economics Background, cont.
MR/MC method is usually used to find profit-maximizing quantity of output.
But it can be used for many other things.
Here, it’s used to find how many hours to stay open.

5. Accounting Background
Contribution Margin (CM) is sales revenue minus variable cost.
CM is usually per unit of output, but it can also be found for other cost objects.
In this case, we use the CM/customer.
CM/customer is the price of goods sold minus the cost of goods sold to the average customer.

6. Accounting Background, cont.
Breakeven customers for a time period = added cost for that time period divided by CM per customer.
Safety margin = expected number of added customers minus breakeven number of added customers.

7. Statistics Background
Regression of a dependent variable Y on an independent variable X gives you an estimated equation of a line: Y = a + bX a = coefficient on intercept b = coefficient on independent variable X
Use p-value on the intercept coefficient to see if it is statistically significant. p-value should be less than significance of .05.

8. Statistics Background, cont.
Difference of means test: determines whether two samples are likely to have come from different populations.
In this case, are evening customers significantly different from day customers in their buying behavior?
Use two-tail test, because the difference could go either way.
Excel will do almost all of this for you!