Buddy inherits a candy store, “The Sugar Shack”, and an inventory of candy from his
Aunt Truffles. He decides to give up his job at a local grocery store, where he is earning
$26,000, so that he can operate the candy store. To operate the store he employs six parttime employees for a total wage bill of $90,000. The annual cost of candy sold in his store is $100,000. The cost of utilities, insurance, and other expenditures is $12,000 per year. He operates “The Sugar Shack” for one year and generates annual revenue of
$235,700.
After one year of operating “The Sugar Shack”, his accountant analyzes his business.
The accountant informs Buddy that he has a substantial accounting profit. Buddy is elated because even after considering the $26,000 he forgoes by giving up his job at the grocery, he is still better of operating the candy store. Buddy shares the good news with his friend, an economist, who is always talking about opportunity cost. Unfortunately, his friend is not as impressed as Buddy had hoped. To his utmost amazement, his friend points out, “Things aren’t always as they first appear”. There may be no profit after all.
His economist friend points out that even though Buddy owns the store, there is still an opportunity cost connected to occupying it. He notes that given prevailing rents, Buddy could rent the building to someone else and earn $7,200 per year.
He also identifies an opportunity cost associated with the inventory of candy. Assume that Buddy could sell the inventory of candy for $35,000. Also assume that the $35,000 could be invested safely at 10 percent interest, thus earning Buddy $3,500 per year
Identify the explicit costs of running “The Sugar Shack”. Identify each category, the specific amount, and the total. Show math and label the numbers. (4 points)
Calculate the accounting profit. Show math and label the numbers. (4 points)

Identify each category of implicit costs, the specific amount, and the total. Show math and label the numbers. (4 points)
Calculate the economic profit (loss). Show math and label the numbers. (4 points)
Based ONLY on economic decision-making, should Buddy keep running the store or should he reallocate his resources into some other area? Explain in detail. (8 points)
Assume that Buddy enjoys running his own business and that it is worth $4,000 (his psychic value) to him to be his own boss. Should Buddy continue to operate the store or should he reallocate his resources into some other area? Show math and label all the numbers. Explain. (6 points)
Points Possible: 30
Points Earned:
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This artifact and the attached self-reflection statement for the economics course requirement are to be included in the student’s General Education Program
Portfolio.
Student: ___ ______________________________________
(Please Type Your Name In The Space Above)
This artifact and self-reflection statement are an example of the student’s ability to apply the concepts, principles, and thinking processes related to the General Education outcome for economics: Apply the foundational elements of economic reasoning to personal and business decision making.
Instructor’s Signature: _ ________________________ Date: _ _________