Answered: John was a high school teacher earning…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

John was a high school teacher earning a net salary of $54,000 per year. After working for one year, he quit his job to start his own milk bar business. In order to start the business, John borrowed $40,000.00 from the bank and was paying 5 percent interest per year. Also, John withdrew $ 50,000 from his savings account. He had been earning 5 percent interest per year for this account.

John’s first year of business can be summarised as follows:

Based on your calculations of accounting profit and economic profit, would you advise John to return to his teaching job or continue with the milk bar business? Show your work!

Item
Amount $
Revenue- Fresh milk section
250,000
Revenue- Yogurt Section
180,000
2 Cashiers expense (wages per worker)
Truck expense
(40,000)
(80,000)
(60,000)
Manager expense
Milk sales assistant expense
(30,000)
Equipment expense
Motorcycle expense to ease movement in
city
(50,000)
(30,000)
2 milk freezers (cost per freezer)
(5000)

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