Question
John Jones owns and manages a caf in Collegetown whose annual revenue is $5,000. Annual expenses are as follows: Expense Amount Labor $2,000 Food and
John Jones owns and manages a caf in Collegetown whose annual revenue is $5,000. Annual expenses are as follows:
Expense | Amount |
Labor | $2,000 |
Food and drink | 500 |
Electricity | 100 |
Vehicle lease | 150 |
Rent | 500 |
Interest on loan for equipment | 1,000 |
a) Suppose John could earn $1,100 per year as a recycler of aluminum cans. However, he prefers to run the caf and is willing to pay $275 per year to run the caf rather than to recycle. Is the caf making an economic profit? (Click to select)Yes/No, the caf is making an economic (Click to select)loss/profit of per year.
Should John stay in the caf business? (Click to select)No, he should not stay in the caf business Or Yes, he should stay in the caf business.
b) Suppose John had not had to get a $10,000 loan at an annual interest rate of 10 percent to buy equipment, but instead had invested $10,000 of his own money in equipment.
Calculate John's annual accounting profit. $.
c) Suppose John could earn $1,000 a year as a recycler, and he likes recycling just as well as running the caf.
How much additional revenue would the caf have to collect each year to earn a normal profit? $ .
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