Joe is self-employed in a store that has a rental value of $500 a month which he pays, but he can vacate the building without giving notice. His other expenses are $100 a month for maintenance. He makes $25,000 a year on net sales (total revenue minus the wholesale cost of the product). If he quit his job and worked the same number of hours elsewhere at a job he liked equally well, he estimates that he could make $20,000 a year. No one else can be hired to work in the store. Joe should

Question

Quizplus · Accepted Answer

Joe's annual expenses for the store are $6,600 ($500/month for rent + $100/month for maintenance * 12 months). With net sales of $25,000, his profit is $18,400.

If he were to quit and make $20,000 at another job, his income would decrease by $4,400. However, he would also eliminate the $6,600 in expenses, resulting in a net increase of $2,200 in income.

Therefore, it makes financial sense for Joe to quit his job and work elsewhere if he can make the same amount of money elsewhere.

Joe Is Self-Employed in a Store That Has a Rental