Jamie is considering leaving her current job, which pays $ 75,000 per year, to start a new company that develops applications for smart phones. Based on market research, she can sell about 50,000 units during the first year at a price of $ 4 per unit. With annual overhead costs and operating expenses amounting to $ 145,000, Jamie expects a profit margin of 20 percent. This margin is 5 percent larger than that of her largest competitor, Apps, Inc.
a. If Jamie decides to embark on her new venture, what will her accounting costs be during the first year of operation? Her implicit costs? Her opportunity costs?
b. Suppose that Jamie’s estimated selling price is lower than originally projected during the first year. How much revenue would she need in order to earn positive accounting profits? Positive economic profits?