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21 February, 04:58

A company owns an empty office building and is deciding how to use it next year. It would cost $100,000 to staff the office and $15,000 for equipment. The revenues would be $160,000. Meanwhile, it could rent the office to another company for $75,000 in revenues. In both cases, the company must pay $5,000 for the building's electricity.

Required:

a) If the company is seeking to maximize its economic profit, which course should it pursue and what is the outcome?

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  1. 21 February, 05:27
    0
    It is more profitable to rent the office. Income will increase by $30,000

    Explanation:

    Giving the following information:

    It would cost $100,000 to staff the office and $15,000 for equipment. The revenues would be $160,000.

    Rent = $75,000 in revenues.

    We need to calculate the most profitable decision:

    Option A:

    Income = 160,000 - 100,000 - 15,000 = 45,000

    Option B:

    Rent = 75,000

    It is more profitable to rent the office.
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