Question

Your cousin decides to give up her carrier as a salesperson with an annual salary of 15 thousand Euros to start her business of sewing designer masks. According to her calculations, she will need an initail investment of 3000 Euros to start the firms, while the costs of materials for one mask youd be 2 Euro. She thinks, she could sell 3000 masks of year for a price of 5 Euros.

a) Calculte the total revenue, fixed costs, variable costs, and total costs, and the total profit of this firm. (3 points)

b) Based on this, do you think it's worth for your cousin to launch this business? Why?

Answer 1

She can sell 3000 masks for 5Euros each so here total revenue is 3000 * 5 = 15000

The fixed cost is 3000 Euros, as it would take her 3000 Euros to start the business before producing a single mask.

The variable cost is 2 euros per mask because it is her cost of material to make the mask. Total variable cost = 6000 euros

Profits = total revenue - total cost(Total + variable cost)

15000 - (3000 + 6000)

= 15000 - 9000

= 6000

No, she should not leave her job as salesperson because in the business she would be making only $6000 while on her job she is making 15000 Euros so it does not make financial sense to open this business.