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?

Question

Braydon Lam

Business

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?

+3

Answers (1)

Know the Answer?

Demetrius Wheeler · Answer 1

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.