Reference no: EM133066599

You are currently making $175,000 per year as an economist for a major Bay Street bank. [Clearly all that E00101 studying paid off.) You are considering leaving the bank and starting your own consulting business. To do so, you need two things: your time, and a $10,000 computer. You have more than $10,000 in the bank, and earn 5% per year on the money you have in the bank.

(a) Assume that after one year of using the computer, you can resell it for $10,000. At what level of yearly consulting revenues do you earn zero economic pro?ts?

(b) Assume instead that after one year of using the computer, you can resell it but only for $4,000. At what level of yearly consulting revenues do you earn zero economic pro?ts?

(c) Return to the assumption that after one year of using the computer, you can resell it for $10,000. You recently lost your $175,000 job. You currently have two job offers, one that pays you $60,000 per year and another that pays you $80,000 per year. [Assume that at equal pay, you are indifferent between these jobs, and between either of these jobs and being a consultant.) At what level of yearly consulting revenues do you earn zero economic pro?ts?