You had been offered a full time job with a salary of $80,000 per year. You are

Question

You had been offered a full time job with a salary of $80,000 per year.
You are currently running your own small business with annual revenue of $150,000 and accountant costs of $60,000. If you close your business, you could sell your computer and other equipment for $2,000 and make a 5% annual interest on it.

a.       Would you accept the job or continue with your own business? Why? Be specific, provide the numerical logic that compares your income accepting the job offer versus your income not accepting the job offer.

b.      If your brother offers you to run your business for $60,000 per year, would you hire him and at the same time accept your own job offer? Why? Be specific, provide numerical logic.

Explanation / Answer

a. Profit = 150000-60000= 90000

Thus opportunity cost of taking up the job is 90000. Now the salary is 80000. Along with it there is a one time payment of 2000 and annual monthly interest of 0.05*2000=100. Hence, the opportunity cost of taking up the job is much higher than what he makes. Hence he would not accept the job.

b. New profit 90000-60000=30000

And the money he makes as a salary is 80000. Hence, in this case he should take up the job and give his business to his brother for running it.

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