Question

You are considering opening a small flower store. You anticipate that you will earn $100,000 each year in revenue. It will cost you $30,000 each year to rent the space necessary to run your business. Additionally, you will need to spend $10,000 each year on flower seeds, utilities, and other expenses necessary to operate your flower shop. You have just graduated from college with a degree in economics and have received an offer to work for a firm with a yearly salary of $70,000.
What is your anticipated economic profit of opening the flower shop?
Based on this information, you ________ open the flower store.

Answer 1

1. The anticipated economic profit for opening the flower shop is $130,000.

2. Based on the information, you should not open the flower store.

Data and Calculations:

Annual revenue = $100,000

Rent expense = $30,000

Cost of goods and others = $10,000

Accounting income = $60,000

Opportunity cost = $70,000

Economic loss = ($10,000) ($60,000 - $70,000)

Anticipated economic profit = $130,000 ($60,000 + $70,000)

Thus, the opening of the flower shop will produce an economic loss for the entrepreneur.

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