In the aftermath of a hurricane, an entrepreneur took a one-month leave of absence (without pay) from her $6,000 per month job in order to operate a kiosk that sold fresh drinking water. During the month she operated this venture the entrepreneur paid the government $3,000 in kiosk rent and purchased water from a local wholesaler at a price of $1.40 per gallon. If consumers were willing to pay $2.30 to purchase each gallon of fresh drinking water, how many units did she have to sell in order to turn an economic profit?
Economic profit considers both implicit and explicit costs.
Total fixed cost of operating a kiosk = Rant + forgone earnings of job
= $3,000 + $6,000 = $9,000 per month
Variable cost = $1.40 per gallon
Thus, the cost function is:
"C(Q) = 9,000 + 1.40Q"
The entrepreneur can earn profit when revenue exceed total costs of operating kiosk.
Total revenue > Total cost
"2.30Q > 9,000 + 1.40Q"
"2.30Q - 1.40Q > 9,000"
"0.9Q>9,000"
"Q>\\frac{9000}{0.9}"
"Q>10,000"
This means entrepreneur did have to sell 10,000 units (gallons) in order to turn an economic profit.
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