Question

A potential entrepreneur is trying to decide whether to open a new health spa. She

currently makes $35,000 per year as an aerobics instructor and will have to give up

this job if she opens the new health spa. If she chooses to open the spa, it will cost

her $200,000 per year in rent and other operating expenses.

How much would she need to make in revenues to earn positive economic

profits?

Answer 1

Accounting Costs = Explicit Costs = $\$200,000$

Opportunity Costs = Explicit Costs + Implicit Costs

$=\$200,000+\$35,000=\$235,000$

Therefore:

Revenues had to be more than $\$235,000$ to earn positive economic profits.