Chad runs a coffee shop that has annual revenues of $300,000, supply costs of $60,000, and employee salaries of $60,000. He has the option of renting out the coffee shop for $80,000 per year, and he has three outside offers from competitors to work as a senior barista at Starbucks (for an annual salary of $30,000), at Simon's coffee house (for an annual salary of $40,000), and at Pete's coffee shop (for an annual salary of $60,000). He can only hold one job at a time. What should Chad do?

a. He should continue to run his coffee shop.
b. He should rent out his coffee shop and take the job at Pete's.
c. He should rent out his coffee shop and take the job at Starbucks.
d. He should rent out his coffee shop and take the job at Simon's.

The correct answer is:

He should continue to run his shop (a.)

Explanation:

What this question is asking for us to do is to help Chad make a choice that will give him the most income. In order to do this, we have to calculate the incomes from each of the choices and make our choice.

1. If he retains the coffee shop;

Total income = Total revenues - total expenditures.

Total Revenues =  annual revenues = $300,000

Total expenditures = supply cost + employee salaries = 60,000 + 60,000

= $120,000

Therefore total revenue = 300,000 - 120,000 = $180,000

2. if he decides to work at Starbucks;

Total income = cost of renting out shop + annual salary

= 80,000 + 30,000 = $110,000

3. if he decides to work at Simon's coffee;

Total income = cost of renting out shop + annual salary

= 80,000 + 40,000 = $120,000

4. if he decides to work at Pete's coffee;

Total income = cost of renting out shop + annual salary

= 80,000 + 60,000 = $140,000

comparing these three choices, he gets the highest income if he continues to run the shop, so option a. is correct

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