A businesswoman is considering two options. The first option is to go into busin

Question

A businesswoman is considering two options. The first option is to go into business for herself. She will have $30,000 in total revenue; $23,500 in purchases and                 $3,000 in utilities costs. She will not have labor costs since she will work alone. She will not pay rent since she is using her own building, and will not have                 interest payments since she is using her own money. The second option is to work for someone else for wages of $3,000. In addition, she would rent her building for                 $2,000. Should this businesswoman go into business for herself or work for someone else? Be sure to take into in your analysis the explicit and implicit costs.

Explain answer clearly to obtain total points. Thank you.

Explanation / Answer

Assuming we take a period of 1 years.

1st option:

Total revenue = $30000

Purchases = $23500

Utilities cost = $3000

THerefore total income = $30000 - (23500+3000) = $3500

2nd option:

Total income = $2000 + $3000 = $5000

Since $5000 > $3500

she should go with the 2nd option.

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