learning activity 1a (50%)\nmaria owns and runs an arts and craft store and the business is doing well. she…

learning activity 1a (50%)\nmaria owns and runs an arts and craft store and the business is doing well. she would have otherwise been employed as a high school geography teacher making $85,000 a year. she owns the building in which her shop is located, which she could have rented out for $24,000 a year. her annual revenue from the shop is $430,000 and she employs four workers, each of whom earns $30,000 a year. on average, she spends $206,000 per year traveling, purchasing, and shipping unique merchandise for resale at her store. based on this information, do you think you should encourage her to return to teaching? explain by discussing her opportunity costs, her accounting profit (i.e. only the explicit costs are considered), and her economic profit (and show your calculations).

learning activity 1a (50%)\nmaria owns and runs an arts and craft store and the business is doing well. she would have otherwise been employed as a high school geography teacher making $85,000 a year. she owns the building in which her shop is located, which she could have rented out for $24,000 a year. her annual revenue from the shop is $430,000 and she employs four workers, each of whom earns $30,000 a year. on average, she spends $206,000 per year traveling, purchasing, and shipping unique merchandise for resale at her store. based on this information, do you think you should encourage her to return to teaching? explain by discussing her opportunity costs, her accounting profit (i.e. only the explicit costs are considered), and her economic profit (and show your calculations).

Answer

Explanation:

Step1: Calculate explicit costs

Explicit costs include workers' salaries and merchandise - related expenses. Workers' total salary is $4\times30000 = 120000$, and merchandise - related expenses are $206000$. So, explicit costs $C_{e}=120000 + 206000=326000$.

Step2: Calculate accounting profit

Accounting profit $\pi_{a}$ is revenue minus explicit costs. Revenue $R = 430000$. So, $\pi_{a}=R - C_{e}=430000-326000 = 104000$.

Step3: Calculate implicit costs

Implicit costs include the potential income from teaching and renting the building. Implicit costs $C_{i}=85000 + 24000=109000$.

Step4: Calculate economic profit

Economic profit $\pi_{e}$ is revenue minus the sum of explicit and implicit costs. $\pi_{e}=R-(C_{e}+C_{i})=430000-(326000 + 109000)=430000 - 435000=- 5000$.

Answer:

No, we should not encourage her to return to teaching. Her accounting profit from the shop is $104000$, but her economic profit is $-5000$. The opportunity cost (implicit costs) of running the shop is high, including the potential income from teaching and renting the building. Since economic profit is negative, if she returns to teaching, she could potentially be better - off in terms of overall economic well - being.