Question

Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000 and costs for the necessary land, labor, and capital of $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year as compared to revenues of $3,275,000 per year. (a) Should she quit her current job to become an entrepreneur? (b) If she does quit her current job, which opportunity would she pursue?

Answer 1

Answer:

It should quite the job and do the organic soap business as it provides an economic gain which consider the implicit cost.

Explanation:

alternative (I)

revenues of   465,000

expenses      (395,000)

net income      70,000

opportunity cost

wages from TV company (50,000)

net economic gain   20,000

alternative (II)

revenues    3,250,000

expenses   3,275,000  

net loss         (25,000)

opportunity cost

wages from TV company (50,000)

net economic loss            (70,000)