14. Tara is considering leaving her current job, which pays $56,000 per year, to start a new company that manufactures a line of special pens for personal digital assistants. Based on market research, she can sell about 160,000 units during the first year at a price of $20 per unit. With annual overhead costs and operating expenses amounting to $3,160,000, Tara expects a profit margin of 25 percent. This margin is 6 percent larger than that of her largest competitor, Pens, Inc. a. If Tara decides to embark on her new venture, what will her accounting costs be during the first year of operation? Her implicit costs? Her opportunity costs? b. Suppose that Tara's estimated selling price is lower than originally projected during the first year. How much revenue would she need in order to earn positive accounting profits? Positive economic profits?
14. Tara is considering leaving her current job, which pays $56,000 per year, to start a new company that manufactures a line of special pens for personal digital assistants. Based on market research, she can sell about 160,000 units during the first year at a price of $20 per unit. With annual overhead costs and operating expenses amounting to $3,160,000, Tara expects a profit margin of 25 percent. This margin is 6 percent larger than that of her largest competitor, Pens, Inc. a. If Tara decides to embark on her new venture, what will her accounting costs be during the first year of operation? Her implicit costs? Her opportunity costs? b. Suppose that Tara's estimated selling price is lower than originally projected during the first year. How much revenue would she need in order to earn positive accounting profits? Positive economic profits?
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.6P
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Transcribed Image Text:14. Tara is considering leaving her current job, which pays $56,000 per year, to start
a new company that manufactures a line of special pens for personal digital
assistants. Based on market research, she can sell about 160,000 units during the
first year at a price of $20 per unit. With annual overhead costs and operating
expenses amounting to $3,160,000, Tara expects a profit margin of 25 percent.
This margin is 6 percent larger than that of her largest competitor, Pens, Inc.
a. If Tara decides to embark on her new venture, what will her accounting
costs be during the first year of operation? Her implicit costs? Her
opportunity costs?
b. Suppose that Tara's estimated selling price is lower than originally
projected during the first year. How much revenue would she need in order
to earn positive accounting profits? Positive economic profits?
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