GT has two options. The first option is to start an event-planner company and be
ID: 1220346 • Letter: G
Question
GT has two options.
The first option is to start an event-planner company and be self-employed. using a business-plan; he computed the following annualestimates
The total revenue is = $ 250k
Made purchase is = $ 145k
Misc utilittty costs is = $ 37k
GT will do everything by himselfe; he doesn’t intend to hire any staff members in the first year of business; he will do everything by himself and the blding has been paid-off.
The second option is to work for an established event planning business; his annual saluary would be $forty four thousand a year and he ccould rent the blding for $twenty four thousand a year.
*using concepts from the accounting and economic profit – compare and contrassst, which would be the most profitable option – explain.
.
Explanation / Answer
Plan A:
TR=$250K
TC = $145K +$37K = $182
Profit = $250k - $182k = $68k (Accounting profit)
Economic profit includes opportunity cost as well which is $44k. Therefore, economic profit = $68k-$68k= $0
Plan B:
TR = $44K+ $24K =$68k
Economic profit = $0 as the opportunity cost is $68k.
Therefore, he should be indifferent as economic profit is zero in both the cases.But Plan A has some risk as cost is involved into it.
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