Tara is considering leaving her current job, which pays $85,000 per year, to start a new company that manufactures a line of special pens for personal digital assistants. Based on market research, Tara estimates that she can sell about 150,000 units during the first year at a price of $25 per unit. With annual overhead costs and operating expenses amounting to $3,350,000, Tara expects her new business to be profitable.
What are Tara’s expected revenues?
What are Tara’s accounting costs?
Are there other costs that Tara should consider from an economic perspective? If so, what?
If Tara decides to embark on her new venture, what will her accounting profits be during the first year of operation?
What will her economic profits be?