South-Western College Publishing - Economics  
The Price of Fame
Subject Rationales for the firm, Types of cost, Profit maximization
Topic Production and Costs
Key Words Income, Cost, Commission
News Story

Although Hollywood stars may make millions of dollars a year, they find that much of their income soon disappears. They need to look good for all the world to see: stylists can cost $2,000 a day, personal trainers up to $30,000 a year, and plastic surgery such as a facelift can cost $10,000-$20,000. Security is vital: bodyguards can run $5,000 a week, while a home security system may cost $150,000. Personal assistants cost $50,000 to $75,000 a year. A publicist may cost $24,000-$36,000 a year. Dues to the Screen Actors Guild cost $2,250 a year. Movie stars also pay taxes.

Agents collect a ten-percent commission for negotiating a movie deal. Lawyers get 5 percent in addition. Managers who help develop the long-term future of the stars may be paid 10 to 15 percent. Business managers earn about 5 percent. However, movie contracts may provide for some expenses to be covered by the studio - perhaps transportation, drivers, trailers, and staff.

(Updated June 1, 1999)

Questions
1. Consider a movie star to be like a business. What are the economic rationales for hiring all the people mentioned in the news story?
2. Being a movie star involves fixed costs and variable costs. Which costs in the news story are variable costs? Explain why.
3. If a star were contemplating signing a contract to star in a movie, what profit-maximizing decision rule should he or she use to decide?
Source Josh Chetwynd, "The price of celebrity", USA Today, April 16, 1999.

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