Question

Shelby is an entrepreneur who has decided to open a small advertising firm. She rents office space at a cost of $25,000 per year, she has employed an assistant at a salary of $30,000 per year, and she incurs annual utility and office supply expenses of $20,000. Her best alternative is to work elsewhere and to earn a salary of $50,000 per year. How much annual revenue must her firm receive so that Shelby earns zero economic profit?

Answer 1

$125,000

Explanation:

In order to cover for all of her expenses and the salaries of her employees, in this case she only has 1 that is costing her $30,000, she has the cost of the rent for $25,000 a year, and the annual utility and office expenses of $20,000, if she desires to earn at least the same $50,000 that the other place is offering her she needs to earn a total of $125,000 in order to be able to pay for the rent of the office, cover the salaries of her and her assistant that add up to 80,000 a year and the office expenses of $25,000.

Answer 2

$ 125,000

Explanation:

Given,

The amount of rent = $ 25,000,

The salary of assistant = $ 30, 000

Expenses = $ 20,000,

Also, her best alternative is to work elsewhere and to earn a salary of $50,000 per year.

Thus, the investment in the firm = 25000 + 30000 + 20000 + 50000

= $ 125,000,

Now, if she earns zero economic profit,

Then her revenue = investment

= $ 125,000