Florence is considering establishing a business and has developed the following estimates of monthly costs and
revenues to aid her in her decision-making process. She has decided to house the business in a building that she already owns, although she could rent the building to someone else for $1,000 per month. Estimated payments for utilities (electricity, natural gas, water, and telephone) are $475 per month. She will hire one employee at a total cost of $1,100 per month. Inventory is estimated to cost $2,800 per month. Finally, Florence earns $3,000 a month in her current job.
a. How much monthly revenue would Florence have to take in to earn 0 economic profit?
b. Assume that Florence has estimated her monthly revenue to be $9,000. In this case, Florence would earn an accounting profit (loss) of ________, and an economic profit (loss) of ________.
c. Assume instead that Florence does not own a building, and that she will have to rent a building for $1,000 per month (all other estimates remain the same). In this case, assuming an estimated monthly revenue of $9,000, Florence would earn an accounting profit (loss) of ________, and an economic profit (loss) of ________.