econ help At the end of 2014, Josie Hightower quit her job as a landscaper for t
ID: 1224842 • Letter: E
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econ help
At the end of 2014, Josie Hightower quit her job as a landscaper for the Colorado Garden Company in Colorado to open a small wholesale business cultivating marijuana for retail businesses. She earned $50,000 a year at her old job. To get started in her new business, she withdrew $80,000 from her retirement account on which she was earning a 2% interest rate annually (she has to worry about paying this back into her retirement account by the end of 2016 or pay extra fines to the government). Josie has been running her business out of her garage and can no longer park her car there. She is now parking her personal car on the street in front of her home. It costs about $1200 a year to rent a garage in her neighborhood). She bought and is making payments to a bank on a used van for her business; the payments were $3600 in her first year (2015) Also, in her first full year in business (2015), Josie paid $70,000 to buy and start 700 marijuana plants/seedlings. She also paid $35,000 in wages and benefits to two part-time employees, $30,000 in various business taxes and licenses, $33,000 in electricity and water bills to cultivate the plants and $10,000 in miscellaneous expenses (lawyer fees, etc.) She paid herself $12,000 in 2015. Josie had $205,000 in total revenues in her first year of business (2015) The average wholesale price of marijuana was about $70 an ounce in Colorado in her first year. She expects that price to fall in the future due to additional competition. She thinks she can expect total revenues of about $240,000 in 2016. She thinks her costs will stay about the same as in 2015Explanation / Answer
7. If Josie is earning super normal profit in short run, then more firm getting attracted with the super normal profit wil enter the market . In long run, as more firms would be there profit of industry would be distributed into more players. more new Firms will continue entering the market until the super normal profit lasted and firms start earning normal profit. Thus in long run, only normal profit will be earned. Lonf run would be equal to or more than 1 year.
8. If price reduces, consumers will demand marijuana more to which total revenue can be increased. total revnue implies what has earned after selling that is price * quantity. If it happens it means consumers' demand for marijuana is price elastic as price reduces demand increases.
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