Problem: 1 - Economic profit Peter has a decent job making $44,000 Peter has bee
ID: 1163330 • Letter: P
Question
Problem: 1 - Economic profit Peter has a decent job making $44,000 Peter has been illegally growing cannabis in his basement for years; he enjoys this and is really good at it. Since Cannabis will soon be legalized Canada, he is considering starting a cannabis growing company. drop. He estimates he can sell $109,000 worth of cannabis. His expenses will be: Utilities S18,000; raw materials S12,000; Sales and distributions S20,000; Equipment Maintenance S6,000; Website Hosting $1,000; Interest on loan $5,000; Insurance S3,000; Permits and Licenses $4,000 per year, however, he does not enjoys his work. He understands that when cannabis is legal, the price will a) Calculate Peter's accounting profit b) Calculate Peter's economic profit. c) Considering only the financial implications, should Peter quit his job and start this business or should he keep his job? d) Outside of the financial implications, is there anything else Peter should consider? e) All things considered, should Peter quit his job? Explain why or why not in your own words.Explanation / Answer
Total revenue=109,000
Total cost=18,000+12,000+20,000+6,000+1,000+5,000+3,000+4,000
Total cost=69,000
Opportunity cost of leaving the job=44,000
A.Accounting profit=TR-TC=109,000-69,000=40,000
B.Economic profit=TR-(TC+Opportunity cost)
Economic profit=109,000-(69,000+44,000)=4000
C.Yes,he scan start the business because the business makes an economic profit of $4000.
D.He should consider that doing this business is not ethically right because drugs cause damage to the society.
E.I believe that although the business would be making profit,he should not leave the job.Cannabis is yet not legal and who knows what the future holds.Moreover,doing this business is not ethically right to me.
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