What is Kim Hanson's economic profit for the past year?
What is Kim's anticipated economic profit for next year?
Should Kim accept the manager's position at the competing restaurant?
After learning about the stipulation in Aunt Hilda's bequest, would it affect the calculations and why?
a. $60,000
b. $90,000
c. No
d. No because the economic profit of Kim's restaurant is still positive, and he is better off running his own restaurant than accepting the manager's position at the competing restaurant.
Economic Profit Calculation
Kim's economic profit for the past year is calculated as follows:
Economic profit = Total revenue - Total cost
= $250,000 - ($130,000 + $50,000 + $10,000 + $200,000 / 10)
= $250,000 - $310,000
= -$60,000
The total cost includes the cost of labor, rent and utilities, depreciation, and the opportunity cost of the investment. The opportunity cost of the investment is the amount of money Kim could have earned if he had invested the money in the mutual fund.
For next year, Kim's anticipated economic profit is calculated as follows:
Economic profit = Total revenue - Total cost
= $250,000 * 1.2 - ($130,000 + $50,000 + $10,000 + $200,000 / 10)
= $300,000 - $310,000
= $90,000
The gross margin is expected to improve by 20%, leading to increased total revenue, while other costs remain the same.
Kim should not accept the manager's position at the competing restaurant. His economic profit at his own restaurant is positive, while it would be negative at the competing restaurant. Additionally, Kim's passion lies in running his own establishment, increasing the likelihood of success.
The new information about Aunt Hilda's bequest does not change the calculations. Despite the stipulation in the inheritance, Kim's economic profit remains positive, making it advantageous for him to continue operating his own restaurant.