Case 1
Resource Economics 313

Introduction: Molly Lai had purchased the Clean Clothes Corner Laundry in a very wealthy neighborhood. Her expectations were to generate good business by improving the laundry’s physical appearance, so she invested a substantial amount of money to improve the interior and exterior appearance of the laundry mat. A year after she acquired the laundry mat, she was disappointed because she expected to make a profit but merely managed to break even. She then realized that the success of her company relied much more on the quickness and quality of her service than on the physical appearance of the laundry. In an effort to improve future business, Molly is considering purchasing a pressing machine at the price of $16,200 that would be able to clean 40 clothes items per hour. Her estimated variable cost per item dry-cleaned is $0.25, and her current monthly fixed cost is $1,700. She charges $1.10 per clothing item.

Case Analysis:
A. Key Challenges
Molly’s major problem is that she is only breaking even and is making no profit off all the hard work she is doing. She faces tough decisions whether or not to purchase new dry-cleaning equipment that could substantially increase the speed and quality of the dry-cleaning. The root cause of her problem is that she thought because she was providing her service in a wealthy neighborhood she would have many customers due to the required dry-cleaning of business clothing. She thought the demand would be high enough to make a profit; therefore she only needed to attract customers to her store by redesigning the laundry mat. Although this may have brought initial customers in, the service would keep them as returning customers. Her root cause was investing in the appearance of her store rather than the quality and quickness of her service. Her short-term problems include only breaking