Question
Sarah can quit her job at Economics R Us where she earns $100,000 a year. Sarah can buy a bus and set up a commuter
Sarah can quit her job at Economics R Us where she earns $100,000 a year. Sarah can buy a bus and set up a commuter service between Los Angeles and San Diego. 10,000 customers will pay $250.00 a year each for the commuter service. Sarah estimates $175 (a year) for each customer will go towards accounting costs that include gas, maintenance, insurance, and depreciation. Also, Sarah estimates that her entrepreneurial skills can yield a normal profit of $15,000 in a part-time business venture selling Avon products. Sarah can sell Avon products while keeping her full time Economics R Us job. Sarah is unable to operate the commuter business while also keeping her job at Economics R Us or selling Avon products part-time. Show all work and calculations. (10 points).
(a) (1) If Sarah starts the commuter service business, what are Sarah's total revenues? (2) What are Sarah explicit costs? (3) What is her accounting profit? (3 point)
(b) What are Sarah's implicit costs she should consider when evaluating her decision on what to do? (2 point)
(c) What is Sarah's economic profit (loss) after considering both implicit and explicit costs? What should Sarah do? (5 points)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started