I am a small business owner - operating general stores in small communities. I was going to start a general store in Gold Rush, a mining community of 300 people in North central Nevada. The closest town of 500 or more people is 300 miles away.

About 95% of people in Gold Rush works for Nevada Mining Co, - as miners or employees. The company just started its mining operation in this area. As a result, I will be the first and only general store in the area.

Despite of fluctuations in gold prices and the new operation in this area by Nevada Mining, I am confident that I can mark up the margin on goods wagoned in from Reno about 450 miles away. Thus, I can earn 4% profits - about the same margin I earned from operations in other more populous areas.

But my Uncle said that I shouln't operate in Gold Rush because it is too risky. He told me that as we were drinking at the bar. So, I am not sure what he meant.

Can you help me? What factors should I worry about - whether my business could be a success? Should I charge 8% margin?

(Hint: using the concept of risk, and risk-return relation)