Imagine That You Are Currently a College Student Working at a Part

question 18

Essay

Imagine that you are currently a college student working at a part time job. You work 15 hours per week as a taco specialist at TACOS! TACOS! TACOS! and earn $8 per hour. One day you realize you're tired of smelling like refried beans all the time and begin thinking about starting your own business. After doing some investigation you decide to spend 15 hours per week running a photocopy service in your dorm. You have determined the following as likely projected expenses and revenues for your first four weeks:
Revenue: $800 (8,000 copies sold at $.10 per copy)
Costs: $400 for photocopy machine rental, $80 for paper (8,000 pages at $.01 per page)
Using this information you decide to start the business. Did you make a wise decision?

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Definitions:

Intertemporal Budget Constraint

A concept that describes the trade-offs between current and future consumption, considering the effects of present decisions on future financial standing.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specific rate of return.

Lifetime Consumption

Refers to the total amount of goods and services consumed by an individual over the entirety of their life.

Real Interest Rate

The interest rate that has been adjusted to remove the effects of inflation, reflecting the true cost of borrowing.