b You have two career options You can work for someone else

b. You have two career options. You can work for someone else for $50,000 a year, or, you can run your own business, with an annual revenue of $100,000, and explicit costs of $40,000 annually. Explain which career option a profit-maximizer would select and why.

Solution

A profit-maximizer will run their own business. The business owner will receive $100,000 - $40,000 = $60,000. The opportunity cost is only $50,000.