Tanya imports sweaters from Peru and sells them from her home. She collects $400,000 in revenue a year, and spends $200,000 on the sweaters and shipping costs, as well as $25,000 on accounting services and utilities. She used to make $100,000 per year working for an advertising agency. Now she works out of the basement of her house, for which she doesn’t have any other marketable use. She has no other expenses.
2.3. Assume that Tanya is interested only in making the most income and that she needs to choose between continuing to run this Peruvian sweater business and returning to her old job in advertising. Tanya should:
A. Return to working for the advertising company
B. Continue to run the Peruvian sweater business
The answer is B, she should continue in the sweater business.
She is correctly making a $75,000 dollar economic profit when considering the other alternative.