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Problem:
Jawad owns and manages a café in Collegetown whose annual revenue is $5000. Annual expenses are as follows.
Labor
$2000
Food and drink
500
electricity
100
Vehicle lease
150
Rent
Interest of loan
1000
a) Calculate Jawad'sannual accounting profit.
b) Jawad could earn $1000 as a recycler of aluminum cans. Is the café making an economic profit? Should Jawad stay in the café business?
c) Suppose that the café's revenues and expenses remain the same, but recycler's earnings are reduced to $700 per year. Explain what the situation would be now.
d) Suppose Jawad did not have to get a $10000 loan at an annual interest of 10%, but instead had invested his own money. Analyze the situation now.
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