Question
Stuart Cane, a consultant working for a large law firm and earning $150,000 per year is contemplating setting up his own consultancy. He estimates that
Stuart Cane, a consultant working for a large law firm and earning $150,000 per year is contemplating setting up his own consultancy. He estimates that renting an office would cost $36,000 per year, hiring a secretary would cost $60,000 per year, and purchasing the required supplies, paying for electricity, telephone, and so forth would cost another $6,000. The lawyer estimates that his total revenues for the year would be $240,000, and he is indifferent between keeping his present occupation with the large law firm and opening his own consultancy.
a) How much would be the explicit costs of the consultant for running his own consultancy for the year?
b) How much would the accounting costs be? The implicit costs? The economic costs?
c) Should the consultant go ahead and start his own consultancy?
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