Answer to Question #266098 in Microeconomics for Amar

Question

Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000. She estimates the costs for the necessary land, labor, and capital to be $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year and revenues of $3,275,000 per year. (a) Should she quit her current job to become an entrepreneur? (b) If she does quit her current job, which opportunity would she pursue

Answer 1

Working as Manager

Annual Salary = $50,000

Organic Soap Business Opportunity

Annual Earnings = $465,000

less: Operation Costs = $395,000

Gross Profit = $70,000

Internet-Based Competitor Business Opportunity

Annual Earnings =$3,275,000

less: Operating Costs =$3,250,000

Gross Profit = $25,000

Question.

a. Yes, she should. Natasha should quite her job and pursue entrepreneurship.

b. Natasha should pursue an opportunity with the organic business because it has a high annual profitability compared to her current job position and the internet-based competitor business opportunity.