Calculate Jessie’s accounting profit and economic profit. In your opinion, should Jessie proceed with opening her own pharmacy? Justify your answer.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter7: Production Economics
Section: Chapter Questions
Problem 11E
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Jessie, a pharmacist, is planning on opening her own pharmacy. Jessie Pharmacy is expected to

generate yearly revenue of $500,000. Jessie will run the pharmacy herself on full-time basis.

Jessie’s alternative employment options are as follows:

- Continue to work as a senior medical representative for $50,000 per year.

- Accepts a research position in another company for $70,000 per year.

Jessie expects to spend $350,000 per year on purchasing drugs and cosmetics for resale to her

customers. She will also need to hire three employees: an assistant, an accountant and a

custodian, for whom the total salaries to be paid are expected to be $48,000 per year. Jessie

owns the building in which her pharmacy is supposed to be; however, she could rent the

pharmacy-store space out for $42,000 per year.

Calculate Jessie’s accounting profit and economic profit. In your opinion, should Jessie proceed

with opening her own pharmacy? Justify your answer.

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