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Evaluation of a restauranteur's business decisions

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A local restaurateur who had been running a profitable business for many years recently purchased a three-way liquor license. This license gives the owner the legal right to sell beer, wine, spirits in her restaurant. The cost of obtaining the 3-way liquor license was about $75,000, since only 300 licenses are issued by the state. While the license is transferable, $65,000 is refundable if the owner chooses not to use the license. After selling alcoholic beverages for about one year, the restaurateur came to the realization that she was losing dinner customers and that her profitable restaurant was turning into a noisy unprofitable bar. Subsequently, she spent about $6,000 placing advertisements in various newspapers and restaurant magazines across the state offering to sell the license for $70,000. After a long wait, she finally received one offer to purchase her license for $66,000. What is your opinion of the restaurateur's decisions? Would you recommend that she accept the $66,000 offer?

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Solution Summary

Managerial economics evaluation of a restauranteur's business decisions about buying and selling a liquor license.

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The decision to purchase the license was a calculated risk that didn't work out. The decision to give up the license was a ...

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