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In: Economics

You are currently working as a Senior Economist for the Congressional Budget Office in Washington DC...

You are currently working as a Senior Economist for the Congressional Budget Office in Washington DC making $108,000 per year. Your lifelong ambition, however, has been to open your own cupcake store. You decide to quit your job as an economist to open your dream store near the River Walk in San Antonio. You estimate that you will be able to sell 10,000 cupcakes per month at a price of $3.40 per cupcake. You will have to pay monthly rent of $5,000 for renting the retail space and will have other cash costs of $2,500 per month (utilities etc.). The ingredients will cost you $2.00 per cupcake. (3 points) Calculate monthly accounting profits (3 points) Calculate monthly economic profits (3 points) Would an economist recommend that you start this business? Why or Why not?

Solutions

Expert Solution

Accounting profit is $6500

Economic profit is (-)$2,500

The business shouldn't be started as the economic profit is negative.

Hope this was helpful!!

Rahul Sunny answered 2 years ago
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