15. A potential entrepreneur is trying to decide whether to open a new health sp

Question

15. A potential entrepreneur is trying to decide whether to open a new health spa. She presently makes $35,000 per year as an aerobics instructor and will have to give up this job if she opens the new health spa. If she chooses to open the spa, it will cost her $200,000 per year in rent and other operating expenses. a. What are her accounting costs? * 200' b. What are her opportunity costs? c. How much would she need to make in revenues to earn positive accounting profits? Positive economic profits?

Explanation / Answer

15. a. Entrepreneur’s cost for opening a spa = $200,000

This is her explicit cost.

• Her accounting costs are = $200,000.

b. • The opportunity cost is that which income she has to forgo as an aerobics instructor.

Her implicit cost = $35,000.

• Her opportunity costs are = $35,000.

c. • In order to make positive accounting profit, she needs to make $200,000 per year in revenue.

• In order to make positive economic profits, she need to make a revenue of $235,000 per year.

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