Problem
You and your best friend are brilliant entrepreneurs who are considering opening your own business tutoring struggling college students in economics. This wonderful endeavor takes the place of the job you were offered working for a rival tutoring service and earning $2,500 a month. Your best friend was offered a similar job at $2,000 (better not tell him about your offer!). Operating expenses for your tutoring business will total $1,500 monthly when you include variable costs such as hiring other tutors. Additionally you will need to lease a building to work out of for $2,000 per month. Together the two of you have enough to cover these operating expenses and the lease but if you pull that money out of your bank accounts you will lose out on $1,000 in interest income you could have collectively earned. You anticipate revenue from your tutoring business will be $8,000 per month
i. What would be the accounting profit/loss for your business? What about the economic profit/loss?
ii. Should you and your friend open the business? Why or why not?