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. Suppose that the store owner gave Joe the store. Now what should he do?

Question

Quizplus · Accepted Answer

If Joe owns the store, he no longer has to worry about paying rent, which is a significant expense. His other expenses of $100 a month for maintenance are also relatively low. Therefore, if he quit his job, he could focus on the store and could potentially make a greater profit than his net income of $25,000 a year. Additionally, owning his own business may provide greater job satisfaction, making the $20,000 a year he could make at another job less attractive.

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