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# Sally is considering opening her own beauty salon. She antic

1. Sally is considering opening her own beauty salon. She anticipates the following costs per year:

Furniture: \$20,000 Additionally, Sally is withdrawing \$34,000 from her savings account that pays 4% interest/year to purchase the furniture and equipment; she will quit her current job that pays \$25,000 per year. She expects total revenues from the new business in the first year to be \$70,000. Calculate the following:
Equipment: \$14,000
Rent: \$12,000
Coloring products: \$6,000
Styling products: \$4,000

a. Explicit costs (list the items).

b. Implicit costs (list the items).

c. Accounting profit.

d. Economic profit.

e. Given this first-year information only, should Sally open a salon?

2. State whether the following decision is a short-run or long-run decision:

a. ADM is deciding whether to install machinery that uses Human Machine Interface technology or 8-layer PCB prototype technology in its manufacturing plant.

b. Wal-Mart hires additional seasonal workers during November and December.

c. Bassett furniture manufacturers close all manufacturing plants in North Carolina, USA and outsource their furniture production to manufacturing plants in China.

d. General Motors purchases new equipment to replace depreciating equipment.

#### Solution Preview

a. Explicit costs (list the items).

furniture 20,000
equipment 14,000
rent 12,000
products 6,000
products 4,000

b. Implicit costs (list the items).

34,000 @ 4% per year
her current ...

#### Solution Summary

Sally is considering opening her own beauty salon. She anticipates the following costs per year:

Furniture: \$20,000 Additionally, Sally is withdrawing \$34,000 from her savings account that pays 4% interest/year to purchase the furniture and equipment; she will quit her current job that pays \$25,000 per year. She expects total revenues from the new business in the first year to be \$70,000. Calculate the following:
Equipment: \$14,000
Rent: \$12,000
Coloring products: \$6,000
Styling products: \$4,000

a. Explicit costs (list the items).

b. Implicit costs (list the items).

c. Accounting profit.

d. Economic profit.

e. Given this first-year information only, should Sally open a salon?

2. State whether the following decision is a short-run or long-run decision:

a. ADM is deciding whether to install machinery that uses Human Machine Interface technology or 8-layer PCB prototype technology in its manufacturing plant.

b. Wal-Mart hires additional seasonal workers during November and December.

c. Bassett furniture manufacturers close all manufacturing plants in North Carolina, USA and outsource their furniture production to manufacturing plants in China.

d. General Motors purchases new equipment to replace depreciating equipment.

\$2.19