Jack is not better off than he was at the beginning of the summer. Despite working hard all summer, he has lost money overall due to the cost of starting up his business and the expenses incurred throughout the summer. Jack started with $6,000 in his savings account. He then used $2,000 to purchase equipment for his business and $3,600 to buy a truck. He has earned a total of $2,200 from customers but has spent $400 on gasoline, $1,000 on a helper, and $200 on advertising, leaving him with a net loss of $1,400 for the summer.
The main reason for Jack’s loss is that he spent too much money on equipment and transportation. He would have been better off if he had used less expensive equipment or if the transportation was low. Additionally, his advertising expenses were too high. Jack could have spent less on advertising or found a more effective way to advertise his business.If he had not started the business, he would have had $6,000 in his savings account still that maybe could have accumulated interest.
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