(Scenario: Betty's Cookie Shop)Use Scenario: Betty's Cookie Shop.Betty is trying to decide at what point she should stop selling cookies,and she knows she cannot change the price of a cookie.She should stop selling cookies if her: Scenario: Betty's Cookie Shop
Betty runs a cookie shop where she sells cookies for $1 each.She employs five people,each of whom worked a total of 500 hours last year;she paid them $10 per hour.Her costs of equipment and raw materials add up to $75,000.Her business ability is legendary,and other companies have offered to pay Betty $100,000 to come to work for them.She also knows she could sell her cookie shop for $150,000.The bank in town pays an annual interest rate of 3% on all funds deposited with it.

Question

Quizplus · Accepted Answer

In this scenario, Betty cannot change the price of the cookies, so her revenue is fixed at $1 per cookie. In order to determine her economic profit, we need to consider her explicit and implicit costs. Her explicit costs include her labor costs of paying her employees $10 per hour for a total of 500 hours each, as well as her costs of equipment and raw materials, which add up to $75,000. Her implicit costs include the opportunity cost of not taking the job offers that she has received, which would pay her $100,000 annually, as well as the opportunity cost of not selling her cookie shop, which could bring in $150,000.

In order to calculate Betty's economic profit, we subtract her explicit and implicit costs from her revenue. Her total revenue would be $1 per cookie times the number of cookies sold. However, we do not know how many cookies she sold, so we cannot calculate her total revenue. However, we do know that her implicit costs are greater than her accounting profits, since her accounting profits only consider her explicit costs and do not take into account her opportunity costs. Therefore, the best choice is C.