Accounting vs. economic costs
Tara is considering leaving her current job, which pays $56000 per year, to start a new company that makes special pens. She thinks she can sell 160000 pens during year 1 at $20@. With overhead costs and operating expenses coming to $3160000, she expects a profit margin of 25%. This margin is 6% larger than that of her biggest competitor.
a) If she decides to embark on her new venture, what will be her accounting costs during year 1?
b) Suppose her estimated selling price is lower than originally projected. How much revenue would she need in order to earn a positive accounting profits? Positive economic profits?