An economics lesson with 255% profits

Want a lesson in basic capitalism? Talk to Jennifer Curtis and Lynn Warman.

In January the bank gave them and 26 other shareholders a loan. Ten weeks later--after repaying the loan, expanding their market area and their product line, and saturating this small coastal town with advertising--they closed the firm. On the books: a 255 percent profit.

And they're only in fifth grade.

It's all part of a lesson in entrepreneurship for Louis Solebello's class at East Belfast School. The loan was for $40. The product: popcorn, sold in school during recess for 25 cents a bag.

''Mr. Solebello wanted us to learn about economics,'' says Jennifer, the slender, blue-eyed president of Colonel's Kernels, ''but he didn't want us to sit in a chair and listen to him all day and get bored.''

So he gathered his public school class into a mock corporation, explained such details as majority rule, agendas, and abstentions, and set them to work. They formed four committees: advertising, cooking and packaging, selling, and purchasing and organizing. Then, after Ree Cunningham of the Northeast Bank & Trust Company came to the school to explain the rudiments of finance, they all flocked over to the bank, opened a checking account, and took out the loan.

''It was an exception to bank policy,'' says Mrs. Cunningham. Not only was their request well below the bank's $600 minimum, but ''they were not really a legal entity.''

But the bank, eager to oblige, treated it as an advertising promotion and wrote a 90-day note calling for interest of $1.78. The students agreed to chip in $2 apiece if they defaulted, and one boy even offered his dog and cat as collateral.

That, of course, was just the beginning.

''One of the big hassles was whether or not to buy a popcorn popper,'' says Solebello, a five-year veteran of Belfast's grade school system. So the purchasing committee checked local prices and finally contracted out five poppers from teachers who owned them. The committee also laid in supplies of oil , butter, salt, and popcorn--more than 500 pounds of it over the 10-week period.

Meanwhile, the selling committee did market surveys, polling students in their school and two other nearby grade schools to gauge demand. And the advertising committee went to work, recording a 60-second ad for the local station, WBME, and preparing copy for the Republican Journal newspaper.

Jennifer admits they had help. Her father, Steven Curtis, is the advertising manager for the paper. She says, ''We got a special price off him.''

Mr. Curtis, however, says the children first negotiated a deal with WBME. Then, he says, Jennifer marched into his office, ''Asked for a rate card, and told me what the radio station was doing.'' The result: $40 worth of newspaper advertising for $9, with student-written copy describing ''the tingling, tantalizing taste of Colonel's Kernels.''

Then the work began. Three days a week the students of Brian Gould's cooking and packaging committee fired up the poppers at 10 a.m. and didn't quit until the buses came at 3:00. ''Sometimes we popped right through lunch,'' says vice-president Lynn Warman, who notes that the new hot air poppers are ''a lot faster'' than the older oil poppers. Speed was important: On a good day, the three-school market could absorb some 300 lunch bags of popcorn.

Like good entrepreneurs, they turned objections into assets. When students complained that the salty snacks made them thirsty, Colonel's Kernels branched out into selling prepared Kool-Aid. At 5 cents a cup, they turned a 3-cent profit on each cup--a better ratio than the popcorn, which netted about 4 cents for every 25-cent bag.

Along the way, they experimented with price resistance, varying the cost between 15 and 40 cents a bag and watching the results. At one point, after the novelty had worn off and sales were dwindling, they recaptured the market by putting prizes into selected bags--bubble gum, pencils, tickets for free cups of Kool-Aid, even 50-cent pieces.

Finally, 1,850 bags of popcorn later, they closed the firm with $142 in the bank after expenses. To cap the project, Jennifer and Lynn gave a 25-minute report to what was said to be a greatly impressed school board.

Still undecided is what to do with the profit. Last week, after the superintendent turned down their request for a field trip to visit a real food processing business, the class treated itself to a pizza party. But the students still have $55 left and are looking for a worthy cause.

What did the class learn? Not only the fundamentals of capitalism, says Solebello, but a lot about self-government, banking, advertising, and personal relations. And, of course, math, which included making graphs and keeping balanced books. For many of the children, he says, ''Making change was the biggest thing.'' At the end, ''I gave them a real hard pencil and paper test'' based on a hypothetical business situation, and they all did well.