Sam has a job as a pharmacist earning $30,000 per year, and she is deciding whether to take another job as the manager of another pharmacy for $40,000 per year or to purchase a pharmacy that generates a revenue of $200,000 per year. To purchase the pharmacy, Sam would have to use her $20,000 savings and borrow another $80,000 at an interest rate of 10% per year. The pharmacy that Sam is contemplating purchasing has additional expenses of $80,000 for supplies, $40,000 for hired help, $10,000 for rent, and $5,000 for utilities. Assume that income and business taxes are zero and that the repayment of the principal of the loan does not start for before three years.

What would be the business and economic profit if Sam purchased the pharmacy? Should Sam purchase the pharmacy?

Suppose Sam expects that another pharmacy will open nearby at the end of the three years and that this will drive economic profit of the pharmacy to zero. What would the revenue of the pharmacy be in three years?

What theory of profit would account for profits being earned by the pharmacy during the first three years of operation?

Suppose that Sam expects to sell the pharmacy at the end of three years for $50,000 less than the price she paid for it and that she requires 15% return on her investment, should she still purchase the pharmacy?

i was kindly requesting for a help in order to get this problem solved

To calculate the business and economic profit if Sam purchased the pharmacy, we need to consider the revenue and expenses associated with running the pharmacy.

First, let's calculate the expenses:
- Supplies: $80,000
- Hired Help: $40,000
- Rent: $10,000
- Utilities: $5,000
Total Expenses: $80,000 + $40,000 + $10,000 + $5,000 = $135,000

Next, let's calculate the revenue:
Revenue: $200,000

To calculate the business profit, we subtract the expenses from the revenue:
Business Profit = Revenue - Expenses = $200,000 - $135,000 = $65,000

Now, let's calculate the economic profit. Economic profit takes into account the opportunity cost of using resources, including the cost of borrowing money.

To calculate the economic profit, we subtract the explicit costs (expenses) and the implicit costs (opportunity cost of using savings and interest on the loan) from the revenue:
Explicit Costs = Expenses = $135,000
Implicit Costs = Interest on loan = $80,000 * 0.10 = $8,000
Implicit Costs = Opportunity cost of using savings = $20,000 * 0.10 = $2,000

Economic Profit = Revenue - Explicit Costs - Implicit Costs
Economic Profit = $200,000 - $135,000 - $8,000 - $2,000
Economic Profit = $55,000

With a business profit of $65,000 and an economic profit of $55,000, Sam would have a positive profit if she purchased the pharmacy.

However, when considering whether Sam should purchase the pharmacy, it's also important to take into account other factors such as risk, personal preferences, and long-term viability of the business.

Now, let's calculate the revenue of the pharmacy in three years. If another pharmacy opens nearby and drives economic profit to zero, it means that revenue would be equal to expenses, resulting in no profit. In this case, revenue would be equal to $135,000.

The theory of profit that would account for profits being earned by the pharmacy during the first three years of operation is the theory of entrepreneurship. The pharmacy is able to generate profits during this period due to the entrepreneurial skills and efforts of Sam in managing the business effectively, providing quality service, and meeting customer demands.

Finally, let's analyze whether Sam should still purchase the pharmacy if she expects to sell it at the end of three years for $50,000 less than the purchase price and requires a 15% return on her investment.

To calculate the return on investment, we can subtract the selling price from the purchase price and compare it with the initial investment:
Return on Investment = (Selling Price - Purchase Price) / Initial Investment

In this case:
Selling Price = Purchase Price - $50,000
Return on Investment = (Purchase Price - $50,000 - Purchase Price) / Initial Investment
Return on Investment = -$50,000 / $100,000
Return on Investment = -0.5

Since the return on investment is negative, it means that Sam would not meet her requirement of a 15% return on investment. Therefore, based on this criterion, she should not purchase the pharmacy.