Ask Econometrics Expert

You are currently a worker earning $60,000 per year but are considering becoming an entrepreneur. You will not switch unless you earn an accounting profit that is on average at least as great as your current salary. You look into opening a small grocery store. Suppose that the store has annual costs of $150,000 for labor, $40,000 for rent, and $30,000 for equipment. There is one-half probability that revenues will be $200,000 and a one-hald probability that revenues will be $400,000.

a. In the low-revenue situation, what will your accounting profit or loss be? In the high revenue situation?

b. On average, how much do you expect your revenue to be? Your accounting profit? Your economic profit? Will you quit your job and try your hand at being an entrepreneur?

c. Suppose the government imposes a 25-percent tax on accounting profits. This tax is only levied if a firm is earning positive accounting profits. What will your after-tax accounting profit be in the low-revenue case? In the high-revenue case? What will your average after-tax accounting profit be? What about your average after-tax economic profit. Will you now want to quit your job and try your hand at being an entrepreneur?

d. Other things equal, does the imposition of the 25-percent profit tax increase or decrease the supply of entrepreneurship in the economy?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9482470

Have any Question?


Related Questions in Econometrics

Monte carlo exercisein order to illustrate the sampling

Monte Carlo Exercise In order to illustrate the sampling theory for the least squares estimator, we will perform a Monte Carlo experiment based on the following statistical model and the attached design matrix y = Xβ + e ...

Economics and quantitative analysis linear regression

Economics and Quantitative Analysis Linear Regression Report Assignment - Background - In your role as an economic analyst, you have been asked the following question: how much does education influence wages? The Excel d ...

Basic econometrics research report group assignment -this

Basic Econometrics Research Report Group Assignment - This assignment uses data from the BUPA health insurance call centre. Each observation includes data from one call to the call centre. The variables describe several ...

Question - consider the following regression model for i 1

Question - Consider the following regression model for i = 1, ..., N: Yi = β1*X1i + β2*X2i + ui Note that there is no intercept in this model (so it is assumed that β0 = 0). a) Write down the least squares function minim ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As