HI5003 Economics for Business -Tutorial Questions

Assessment Question Week 4:
Production costs

Question 2 (7 MARKS):
James was a high school teacher earning a net salary of $4500 per month. After working for one year, he quit his job to start his own kiosk business dealing in various consumer goods. In order to learn how to run the business, James enrolled in a TAFE to acquire accounting skills. James’ course was for 6 months. James had to pay $3,000 as tuition for the 3 months.
After the training, James borrowed $40,000.00 from his uncle whom he pays 8 percent interest per year.
Also, James withdrew $ 50,000 from his savings account. He had been earning 5 percent interest per year for this account. Further, to start the business James used his own premises given to him by his father.
His father had been receiving $11,000 from rent per year. Finally, to start the business James uses $75,000 he had been given by his father to go on holiday to USA.
James’s first year of business can be summarized as follows:

Based on your calculations of accounting profit and economic profit, would you advise James to return to his teaching job or keep his kiost job? Show your work!