1. Consider the following information about Sabrina who has a clothing manufacturing

company that sews clothing such as mini-skirts. Her alternative is working for the

designer shop for 60,000 per year. Her total revenue is $280,000 per year. Her explicit

costs are:

$50,000 for cloth, thread, and other materials

$20,000 for utilities

$70,000 for labor

$60,000 for rental equipment

She has an offer to buy the company for $400,000, which she can otherwise invest with an

annual return of 10%.

a. What are her accounting profits?

b. What is her total opportunity cost? (Hint: there are 2 opportunity costs you must add

them together and subtract the total opportunity cost from the accounting profit to find

the 1 economic profit)

c. What are her economic profits?

D. What should she do with her company?