Case Study: Baseline Bites at the Softball Complex

In this case study, students will play the role of a young entrepreneur calculating accounting and economic profits and losses to make decisions for a fictitious business to determine if it’s viable.

Economics

A profitable business is at least one of the goals of an entrepreneur. Most people consider accounting profit when making decisions–that is what is the gain (or loss) when considering revenue minus all costs of the business. However, economists focus not just on explicit costs but implicit costs or opportunity costs when considering if something is profitable or not. This lesson walks students through both accounting and economic profit calculations to help them make a decision on whether or not the business is profitable. 

Objectives:

After completing this lesson students will be able to:

• calculate basic business costs, including total cost, cost per unit, and profit per unit, using given data.
• apply the concepts of explicit and implicit costs to calculate accounting and economic profits for a small business scenario.
• evaluate the overall viability of a business by comparing accounting and economic profits and considering opportunity costs.

Standards and Benchmarks

Voluntary National Content Standards in Economics and Benchmarks

Standard 1: Scarcity

Productive resources are limited. Therefore, people cannot have all the goods and services they want; as a result, they must choose some things and give up others.

• Benchmark Grade 12
  2. Making good choices should involve trading off the expected value of one opportunity against the expected value of its best alternative.

Standard 2: Decision Making

Effective decision making requires comparing the additional costs of alternatives with the additional benefits. Many choices involve doing a little more or a little less of something: few choices are “all or nothing” decisions. 

• Benchmark Grade 12
  1. To produce the profit-maximizing level of output and hire the optimal number of workers, and other resources, producers must compare the marginal benefits and marginal costs of producing a little more with the marginal benefits and marginal costs of producing a little less.

Standard 14: Entrepreneurship 

Entrepreneurs take on the calculated risk of starting new businesses, either by embarking on new ventures similar to existing ones or by introducing new innovations. Entrepreneurial innovation is an important source of economic growth.  

• Benchmark Grade 8
  1. Entrepreneurs compare the expected benefits of entering a new enterprise with the expected costs.
  2. Entrepreneurs organize resources to produce goods and services because they expect to earn profits.
  3. Entrepreneurs (as well as other sellers) earn profits when the revenues they receive from selling the products they sell are greater than the costs of production. 
  4. Entrepreneurs (as well as other sellers) incur losses when the revenues they receive from selling the products they sell do not cover the costs of production. 
  5. In addition to profits, entrepreneurs respond to other incentives, including the opportunity to be their own boss, the chance to achieve recognition, and the satisfaction of creating new products or improving existing ones. In addition to financial losses, other disincentives to which entrepreneurs respond include the responsibility, long hours, and stress of running a business.

 Concepts

Entrepreneurship, Opportunity cost, Profit, 

Time Required

60 minutes