Jan 16, 2018 sample paper

Calculate the accounting profit and economic profit in the first option.

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A businesswoman is considering two options. The first option is to go into business for herself. She will have $30,000 in total revenue; $23,500 in purchases and $3,000 in utilities costs. She will not have labor costs since she will work alone. She will not pay rent since she is using her own building, and will not have interest payments since she is using her own money. The second option is to work for someone else for wages of $3,000. In addition, she would rent her building for $2,000. Should this businesswoman go into business for herself or work for someone else? Calculate the accounting profit and economic profit in the first option.


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