David Owns the Building Out of Which He Operates a Small

question 7

Multiple Choice

David owns the building out of which he operates a small graphic arts business. He has extra space available and is considering converting the extra space into a gourmet coffee shop that
He would also run. A local businesswoman has offered to rent the extra space from him for her
Own needs. She has suggested she would be willing to pay $1,000 a month in rent. In
Estimating the cash flows associated with the gourmet coffee shop, David should

• A)ignore the $1,000 rent since it is a non-issue if David decides to undertake the coffee shop project.
• B)include the $1,000 rent as a cash inflow.
• C)include the $1,000 rent as a cash outflow.
• D)consider the $1,000 as an added benefit.

---

Definitions:

Marginal Product

The additional output gained from employing an extra unit of input in the production process.

Produce

To create, manufacture, or cultivate goods, especially agricultural products, for consumption or use.

Labor

The use of human physical and mental capabilities to generate goods and services.

Profit Maximization

The process or strategy a firm uses to achieve the highest possible profit from its operations.