Suppose your current job pays you $225,000 a year. However, you are considering starting your own company. Based upon your research, you estimate your first-year total revenue to be $4,700,000. There are however several costs of running the company during this first year, such as the cost of materials which will equal $1,300,000, employees who will receive in total $1,500,000, utilities which will cost $750,000, and rent that will be paid to the landlord that equals $1,000,000. Based on this information, solve for both your accounting profit and economic profit during this first year. Also, based upon these profit values, state whether you are better off starting this company or staying in your current job.

Accounting profit = Total revenue - Explicit costs Economic profit = Total revenue - Explicit costs…

Answered: Suppose your current job pays you…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose your current job pays you $225,000 a year. However, you are considering starting your own company. Based upon your research, you estimate your first-year total revenue to be $4,700,000. There are however several costs of running the company during this first year, such as the cost of materials which will equal $1,300,000, employees who will receive in total $1,500,000, utilities which will cost $750,000, and rent that will be paid to the landlord that equals $1,000,000. Based on this information, solve for both your accounting profit and economic profit during this first year. Also, based upon these profit values, state whether you are better off starting this company or staying in your current job.

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