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Isabella owns and manages a small cafe near Newport Beach that sells pastries. She earns monthly revenue of $10,000 selling her pastries. In order to
Isabella owns and manages a small cafe near Newport Beach that sells pastries. She earns monthly revenue of $10,000 selling her pastries. In order to operate the cafe, Isabella spends $1,000 on raw materials like eggs, flour, milk, butter and frosting, $4,000 on labor, $1000 on rent, and $200 on utilities, every month. Because of her success with the cafe, local rival Seaside Cafe wants her to sell her cafe, and come to work for them as a baker, offering her a salary of $4,500 per month. a) What is Isabella's total explicit cost for her cafe? b) How much accounting profit does Isabella earn? How much economic profit does Isabella earn? (Hint: Remember, accounting profit considers explicit cost while economic profit considers explicit and implicit costs). c) Based on your answer from part b, should Isabella continue to run her cafe or take the baker job at Seaside Cafe? Why? (Hint: Your answer should include either 'economic profit' or 'economic loss')
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