Peggy-Sue’s cookies are the best in the world, or so I hear. She has been offered a job by Cookie Monster, Inc., to come to work at $110,000 per year….

Peggy-Sue’s cookies are the best in the world, or so I hear. She has been offered a job by Cookie Monster, Inc., to come to work at $110,000 per year. Currently, she is producing her own cookies, and she has revenues of $320,000 per year. Her costs are $49,000 for labor, $25,000 for rent, $37,000 for ingredients, and $7,500 for utilities. She has $300,000 of her own money invested in the operation, which, if she leaves, can be sold for $40,000 that she can invest at 25 percent per year.

a. Calculate her accounting and economic profits.

Instructions:

Accounting profit: $_______

Economic profit: $_______

b. Advise her as to what she should do.

As an economist, I would advise Peggy-Sue to:

a)accept the job at Cookie Monster Inc. because she is currently earning an economic profit.

b)decline the job at Cookie Monster Inc. because she is currently earning an economic profit.

c)decline the job at Cookie Monster Inc. because she is currently earning economic losses.

d)accept the job at Cookie Monster Inc. because she is currently earning economic losses.

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