Sally Quit Her Job as an Auto Mechanic Earning $50

Essay

Sally quit her job as an auto mechanic earning $50 000 per year to start her own business.To save money,she operates her business out of a small building she owns which,until she started her own business,she had rented out for $10 000 per year.She also invested her $20 000 savings (which earned a market interest rate of 5% per year)in her business.You are given the following information about the first year of her operations.
Total revenue $120 000
Cost of labour 40 000
Cost of materials 15 000
Equipment rental 5 000
a.Calculate her economic costs.
b.Calculate her accounting costs.
c.Calculate her implicit costs.
d.Sally tells you that she would really like to move to a location closer to town but she decided against it because 'right now I don't pay any rent and it will cost me $10 000 a year to rent near town.' Do you agree with her reasoning?
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