Question

2. Cathy started her own line of custom-made and hand-embellished wedding shoes. She opened up her own shop, paying $2500 as a one-time licensing fee. She used about $3000 in raw materials and made $3500. At the end of the first month, Carly, her sister, looked at her financials and told her that she was losing money and should shut down. Cathy is heartbroken. As an economics guru, what would you advise her to do?

Answer 1

I would explain to Cathy that her sister Carly is not right. When starting a business, there must be investments that will be amortized over time, that is, profit is not immediate. In the case of the shoe store, I would explain that the first month was positive, since the difference between the cost of the material and the production sold was + $ 500. Thus, Cathy amortized $ 500 of the licensing fee. So if this sales pattern is maintained, by the fifth month the entire investment will have been amortized and from the sixth month on, Cathy will begin to make a profit from your business.