Ed Van Zaig is considering opening a sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building he owns and currently rents for $6,000 a year. His costs at the sushi bar would be $50,000 for foodand $2,000 for gas and electricity. What is the minimum revenue he must earn per year in order for it to be worth his while to open his sushi bar?
A) $26,000
B) $66,000
C) $78,000
D) $52,000
E) $72,000

Question

Quizplus · Accepted Answer

To calculate the minimum revenue Ed must earn to make opening the sushi bar worthwhile, we need to consider both his explicit and implicit costs. Explicit costs are direct out-of-pocket expenses, such as $50,000 for food and $2,000 for gas and electricity, totaling $52,000. Implicit costs include the opportunity costs of quitting his job ($20,000) and the lost rental income from the store building ($6,000), totaling $26,000. Adding both explicit and implicit costs gives us $52,000 + $26,000 = $78,000. Therefore, Ed must earn at least $78,000 per year to justify opening the sushi bar.

Ed Van Zaig Is Considering Opening a Sushi Bar