Suppose you’re considering owning your own restaurant

Question # 00785001 Posted By: dr.tony Updated on: 11/26/2020 09:36 AM Due on: 11/26/2020
Subject Education Topic General Education Tutorials:
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(On explicit and implicit costs) 

Suppose you’re considering owning your own restaurant. To do so, you’ll have to resign from your current job that pays $46,000 per year and cash in your life savings of $200,000, which you have invested in mutual funds that return an average of 6% per year. You estimate that you’ll have to spend $4000 during the year to maintain the equipment so that it maintains its market value of $200,000. It turns out that you currently own a building that you plan to use for your restaurant, which you currently rent out to others for $2500 per month. Finally, you anticípate that during the year you’ll spend $50,000 on food, $40,000 for labor, and $14,000 for utilities and supplies. 

Compute the economic costs of operating the restaurant during the first year, making sure to identify the explicit and implicit costs. This total, by the way, is the amount of revenues you will need to achieve a zero economic profit.


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