Question

Henrietta, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $35,000 of expenses associated with this investigation. Based on the regulatory environment for hotels in the city, she decides not to expand. During the year, she also investigates opening a restaurant that will be part of a national restaurant chain. Her expenses for this are $53,000. She proceeds with opening the restaurant, and it begins operations on September 1.

Answer 1

Henrietta's business expenses can be understood as explicit and implicit costs when exploring new business ventures. The scenario considers these costs as well as potential profitability when deciding on expanding a hotel chain or opening a restaurant.

Step-by-step explanation:

The scenario described involves decisions related to business expansion and an analysis of associated costs. In this context, Henrietta has incurred investigation expenses which are considered explicit costs associated with exploring expansion opportunities. The decision not to proceed with the hotel expansion in the Northeast resulted in a sunk cost of $35,000. Conversely, the $53,000 spent on investigating the restaurant expansion, which did proceed, would be considered part of the start-up investments for that venture.

Additionally, when considering the accounting profit for Eryn and Fred's scenarios, it is critical to take into account the implicit costs, which include the loss of salary from their current jobs. These implicit costs affect the overall profitability and should be considered when making a sound business decision regarding new ventures.