A potential entrepreneur is trying to decide whether to open a new health spa. S

Question

A potential entrepreneur is trying to decide whether to open a new health spa. She presently makes $35,000 per year as an aerobics instructor and will have to give up this job if she opens the new health spa. If she chooses to open the spa, it will cost her $200,000 per year in rent and other operating expenses.
a. What are her accounting (explicit) costs?
b. What are her opportunity costs (explicit cost + implicit cost)?
c. How much would she need to make in revenues to earn positive accounting profits? Positive economic profits?

Explanation / Answer

a. What are her accounting (explicit) costs? 200,000 per year in rent and other operating expenses. b. What are her opportunity costs (explicit cost + implicit cost)? 200,000 per year in rent and other operating expenses+ $35,000 per year as an aerobics instructor=235,000 c. How much would she need to make in revenues to earn positive accounting profits? Anything above 200,000 Positive economic profits? Anything above 235,000 Hope this helps

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