Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She develops two possible entrepreneurial business opportunities. In one, she will quit her job to start a hand-made soap company. In the other, she will try to develop an Internet-based competitor to the cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000 and costs for the necessary land, labour, and capital of $395,000 per year. For the Internet opportunity, she anticipates costs for land, labour, and capital of $3,250,000 per year as compared to revenues of $3,275,000 per year.a. Should she quit her current job to become an entrepreneur?b. If she does quit her current job, which opportunity should she pursue?
Question
Suppose Natasha currently makes 465,000 and costs for the necessary land, labour, and capital of 3,250,000 per year as compared to revenues of $3,275,000 per year.a. Should she quit her current job to become an entrepreneur?b. If she does quit her current job, which opportunity should she pursue?
Solution
a. To determine whether Natasha should quit her job to become an entrepreneur, we need to compare her current income with the potential profits from the entrepreneurial opportunities.
For the soap-making business, the potential profit would be the revenue minus the costs, which is 395,000 = $70,000 per year.
For the Internet-based business, the potential profit would be the revenue minus the costs, which is 3,250,000 = $25,000 per year.
Both entrepreneurial opportunities offer higher income than her current job ($50,000). Therefore, from a purely financial perspective, it would be beneficial for Natasha to quit her job and become an entrepreneur.
b. If Natasha decides to quit her job, she should choose the opportunity with the highest profit. In this case, the soap-making business offers a higher annual profit (25,000). Therefore, she should pursue the soap-making business.
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