CLO #1 – Describe how goals, constraints, incentives, and market rivalry affect economic decisions
- 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
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