Economic cost?

Question

Professor Martin is considering leaving the university and opening a consultant business. Her services as a consultant she would be paid $75,000 a year. To open the business Professor Martin must convert a house from which she collects rent of $10,000/year for office space and hire a secretary at a salary of $15,000 a year. She must also withdraw $10,000 from her savings account for misc. expenses and must forgo earning 10% interest per year. The university pays Professor Martin $50,000 as professor a year. Based only on economic decision making predict if this professor will leave or stay?

I predict that she will stay at the university. Is this correct?

Answer 1

The startup expenses will cost her $36,000. She will make a profit of around $39,000 the first year, and around $50,000 the next year if the misc. expenses are paid back into savings and are a one time thing.

As a professor she has no costs. She will make $60,000 a year plus whatever intrest her savings account makes.

Answer 2

The other expenses that were not mentioned are the loss of health care, retirement benefits, and vacation time in her current position; the additional hours she will have to work to maintain -- and cultivate -- her client base; and the loss of a social life. However, there is the potential for unlimited economic gain after the first five years, and personal satisfaction.

It could go either way!

Answer 3

Martin is gone.