Question

you are considering opening a small flower store. you anticipate that you will earn $100k each year in revenue. it will cost you $30k each year to rent the space necessary to run your business. additionally, you will need to spend $10k each year on flower seeds, utilities, and other expenses necessary to operate your flower shop. you have just graduated from college with a degree in economics and have received an offer to work for a firm with an annual salary of $70k. (for simplicity, assume there are no other benefits to opening the small flower store or to the other job)should you open your flower shop?

Answer 1

When considering the costs and revenues of opening a flower shop, it is important to consider both explicit and implicit costs. In this case, the economic profit is positive, indicating that opening the flower shop would be financially beneficial compared to taking a job offer.

Step-by-step explanation:

To determine whether you should open your flower shop, you need to consider the costs and revenues associated with the business. In this case, the annual revenue is $100,000, and the annual costs are $30,000 for rent and $10,000 for other expenses. The accounting profit, which considers only explicit costs, would be $60,000 ($100,000 - $30,000 - $10,000). However, you also need to consider the implicit cost of the job offer you received, which is an annual salary of $70,000.

Therefore, your economic profit, which considers both explicit and implicit costs, would be $10,000 ($60,000 - $70,000). Since your economic profit is positive, it indicates that opening the flower shop would be financially beneficial compared to taking the job offer. However, it's important to consider other factors such as the risks and potential growth of the flower shop business before making a final decision.