Thinking about economic profit... a) You are considering opening a small flower store. You anticipate that you will earn $100,000 each year in revenue. It will cost you $30,000 each year to rent the space necessary to run your business. Additionally, you will need to spend $10,000 each year buying wholesale flowers and paying your utilities and other expenses. You have just graduated from college with a degree in economics and have received an offer to work for a firm with a yearly salary of $70,000. Should you open the flower shop? Briefly explain.
b) A year ago, Shani graduated from college and decided to open her own software company. Over the past year, her start-up has generated $500,000 worth of revenue. She hired two software engineers and paid each of them $150,000 over the past year. She also purchased web-hosting services that cost a total of $30,000. In order to save money, Shani decided to run the business out of her basement. Previously, she had rented this space out to a tenant for $6,000 a year. Instead of opening her own business, she could have gone to work for Microsoft and earned $200,000 over the past year.
i) How much were the accounting profits for Shani's business over the past year? Show your work.
ii) How much were her economic profits over the past year? Show your work.
iii) Given this information, should Shani have launched her own business? Briefly explain