CLO #1 – Describe how goals, constraints, incentives, and market rivalry affect economic decisions.
Jamie is considering leaving her current job, which pays $75,000 per year, to start a new company that develops applications for smartphones. Based on market research, she can sell about 50,000 units during the first year at a price of $4 per unit. With annual overhead costs and operating expenses amounting to $145,000. Jamie expects a profit margin of 20 percent. This margin is 5 percent larger than that of her largest competitor, Apps, Inc.
If Jamie decides to embark on her new venture, what will her accounting costs be during the first year of operation?
Her company’s implicit costs?
Her company’s opportunity costs?
Suppose that Jamie’s estimated selling price is lower than originally projected during the first year. How much revenue would she need in order to earn:
Positive accounting profits?
Positive economic profits
CLO #1 – Explain how economic decisions are influenced by goals, limits, incentives, and market rivalry.
Jamie is thinking about leaving her current position, which earns $75,000 per year, to establish a new company that creates smartphone apps. According to market research, she can sell roughly 50,000 units for $4 each unit in the first year. With a total of $145,000 in annual overhead and operational expenses. Jamie anticipates a 20% profit margin. Her profit margin is 5% higher than Apps, Inc., her biggest competitor.
What would Jamie’s accounting costs be during the first year of operation if she decides to start her new business?
What are the hidden costs of her business?
What are her firm’s opportunity costs?
Assume Jamie’s expected selling price is lower.
