Despite the daunting statistic that 75% of bars (establishments that sell alcoho

Question

Despite the daunting statistic that 75% of bars (establishments that sell alcoholic beverages) fail in their first year, you still decide to open your own neighborhood bar. Consider this information when answering the following questions:

1) Will your bar have a theme or specialty? If so, what is it?

2) Where will your bar be located? Is there available parking? Parking lot or street parking?

3) How many bartenders will you have working on a Monday night versus a Saturday night?    

4) What might be an explicit cost for your bar? What might be an implicit cost for your bar?

5) On your one year anniversary of opening your bar, you find that your accounting profits are positive, but your economic profits are negative. Would you stay in business or shutdown the bar? Why?

Explanation / Answer

(1) Yes. To attract more customers, I'll keep a theme based bar. Probably a ship-themed brewery.

(2) It will be located somewhere easily accessible with available parking.

(3) 5 times more bartenders will be working on a Saturday night than on a Monday night because of high volume of customers expected on weekends.

(4) Explicit costs would be cost of supplies, wages to employees etc. Implicit cost is the opportunity cost of the business, i.e. resources invested in the bar which could be put to other uses. For example, the salary I'm letting go off in case I had taken up a job instead of spending my time at the bar; the rent I could have earned by renting the place (where the bar is opened now) to someone else; the money I have spent in opening in bar could have earned interest if deposited in a bank.

(5) Economic Profits take into account the implicit cost of business as well. So they tend to be lower than accounting profit. But in the long run, if economic profits remain to be negative, the bar will be shut down.

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