You have opened your own word-processingservice. You bought a personal computer,

Question

You have opened your own word-processingservice. You bought a personal computer, and paid $5,000 for it.However, due to the cost changes in the computer industry, thecurrent price of an equivalent machine is $2,500. You could sellany used machine for $1,000. If you were not word processing, youcould earn $20,000 per year at an alternative job. Assume that theinterest rate is 10%. You can also hire an assistant who can doeverything that you can do for $20,000 per year (you would stillcontinue to do word processing). One person using one computer can produce 11,000 typed pages peryear, and the price per page for your service is $2. You are considering three options: (1) expand your business byhiring an assistant. (2) leave your business the way it is (3) shutdown. Based on the costs and revenues above, which should you do?Explain and show any relevant calculations.

Explanation / Answer

Answer:

6

Option C:
Revenue = 0
No costs, since opportunity costs no longer apply, and fixed costs are sunk.
Economic profit = 0

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