Question

Lisa is a self-employed physical therapist who works from a rented space. Lisa charges \(\$ 250\) for a therapy session. She incurred the following costs last month: space and equipment rental, \(\$ 1,200\); wages, \(\$ 3,500 ;\) materials, \(\$ 1,800 .\) If Lisa's profit last month was \(\$ 2,000\), how many clients did she see? \(\left[\mathrm{LO}_{12} .1\right]\)

Short answer

Lisa saw 34 clients.

Step-by-step solution

Identify Total Costs

Calculate Lisa's total costs by summing up her expenses for space and equipment rental, wages, and materials. Total costs = $1200 + $3500 + $1800.

Calculate Total Revenue

To find the total revenue, add Lisa's profit to her total costs. Since profit is revenue minus costs, Revenue = Profit + Costs. Given that Profit = $2000, calculate Revenue = $2000 + Total Costs (from Step 1).

Determine Revenue per Client

Lisa charges $250 per therapy session, which means the revenue per client is $250.

Calculate Number of Clients

Calculate the number of clients Lisa saw by dividing the total revenue by the revenue per client. Number of clients = Total Revenue / Revenue per client.

Key concepts

Profit Calculation

Profit calculation is a fundamental concept in microeconomics. It's essentially the difference between total revenue and total costs. In Lisa's scenario, her profit is explicitly stated as \( \$2000 \). She earns this profit by having her total revenue exceed her total costs. Understanding profit involves considering all sources of income and all expenses. To determine profit:

• Identify Total Revenue: This is the total amount of money earned from providing services, without accounting for costs.
• Calculate Total Costs: This includes all expenses related to providing the service, such as rent, wages, and materials.

Profit helps Lisa determine the efficiency of her business and guides her in setting future financial goals. It also indicates which areas may need cost adjustments or increased revenue efforts.

Cost Analysis

Cost analysis involves the careful evaluation of all expenses involved in the delivery of services. Lisa's costs include various necessary elements:

• Space and Equipment Rental: \( \\(1200 \) for the location and tools needed.
• Wages: \( \\)3500 \) for any assistants or extra help she might employ.
• Materials: \( \$1800 \) for items needed for therapy sessions.

The sum of these costs gives Lisa's total expenses for the month. By analyzing these costs, she can look for areas where she might reduce spending or negotiate better agreements. Cost analysis is crucial for maximizing profit as it identifies areas that are consuming more resources without directly increasing revenue. It also aids in strategic planning and budgeting to ensure profitability is maintained.

Revenue Calculation

Revenue calculation is critical as it indicates the total income generated before subtracting expenses. For Lisa, revenue is calculated by adding her profit to her total costs.Here's how to break it down:

• First, calculate total revenue using the formula: Revenue = Profit + Total Costs.
• With a profit of \( \$2000 \) and total costs previously determined, Lisa's revenue is the sum of these numbers.

Understanding revenue not only helps Lisa manage her current operations but also plan for expansion or improvement. She can assess if her pricing strategy is effective and if the number of clients she serves matches her financial goals.

Self-Employment Economics

Self-employment economics involves managing your own business, where effective cost and revenue management are key. For a self-employed individual like Lisa, every financial decision directly impacts her livelihood. Here are key points to consider:

• Income Variability: Income can vary greatly from month to month, so Lisa must be prepared to budget accordingly.
• Expense Monitoring: Unlike employees, Lisa bears her business expenses, which means she must track costs meticulously.
• Client Management: Pricing and service offerings must be right to ensure a steady flow of clients and sufficient earnings.

Being self-employed offers freedom and flexibility, but it also requires strategic financial planning and risk management. Success often depends on how well Lisa balances attracting clients with keeping costs in check, all while ensuring she remains competitive in her field.