Bella Inc. is a bakery business that sells cakes online. Last year, the company sold 40,000 cakes at a price of $5 per unit. The total costs for the year consisted of $30,000 in rent, $50,000 in labour, $20,000 in materials, and $10,000 in miscellaneous costs. The owner of Bella Inc. gave up her job working at another company for $90,000 a year. She also invested her retirement savings in the business, which she believes could have earned $10,000 in interest during the year if it had been invested.
1. Calculate Bella Inc.’s total revenue, accounting profit, and economic profit.
Show formulas and calculations.
a) Total revenue (Thinking /2)
b) Accounting profit (Thinking /3)
c) Economic profit (Thinking /3)
2. Should the owner of Bella Inc. stay in business or go back to her previous job?
Explain your answer using economic terms where possible
1 answer