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Question: 2 your aunt is thinking about opening a hardware store...

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2. Your Aunt is thinking about opening a hardware store. She estimates that it would cost 500k per year to rent the location and buy the stock. In addition, she would have to quit her 50k/year job as an accountant.

Define Opportunity cost. What is your aunt's opportunity cost of running the hardware store for a year? If your aunt thinks she can sell 510k worth of merchandise in a year, should she open the store? Explain.

3. You are the CFO for a firm that sells digital music players. Your firm has the following average total cost schedule:

Quantity AVG Total Cost
600 players 300 $
601 players 301$

Your current level of production is 600 devices, all of which were sold. Someone calls desperate to buy one and offers 550 for it. Should you accept the offer? Why or why not?

7. Your cousin vinnie owns a painting company with the fixed cost of 200 dollars and following schedule for variable costs:

# of houses painted per month 1 2 3 4 5 6 7
Variable Costs $10 $20 $40 $80 $160 $320 $640

Calculate average fixed cost, average variable cost, and average total cost for each quantity. What is the efficient scale of the painting company?

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