Rodriguez operates a variety store with an annual revenue of $480 000. Each year, he pays $25
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Question:
Rodriguez operates a variety store with an annual revenue of $480 000. Each
year, he pays $25 000 in rent for the store, $15 000 in business taxes, and
$350 000 on products to sell. He estimates he could put the $80 000 he has
invested in the store into his friend's restaurant business instead and earn an
annual 20 percent profit on his funds. He also estimates that he and his family
could earn a total annual wage of $90 000 if they worked somewhere other
than the store.
a. Calculate the total explicit costs and total implicit costs of running the variety
store.
b. What are the accounting profit and economic profit of the variety store?
c. Should Rodriguez consider closing down this business? Why or why not?
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