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Answer :
By employing regression analysis, Geoff can assess the first annual profit of his potential coffee franchise. If his total revenue equals his total costs, his profit is 0. However, this does not account for any possible implicit costs which could lead to negative economic profit.
If Geoff decides to conduct a regression analysis for his potential coffee franchise to assess its first-year profitability, he'll be considering several factors, essentially revenue and cost of operation.
Using an example, suppose Geoff's total revenue, where he sold 75 packs of coffee at a price of $2.75, exactly matched his total cost.
In this scenario, the profit calculation would be as follows:
Profit = total revenue - total cost.
So, with both total revenue and total cost being equal, Geoff ends up with zero profit.
This is based on the formula (75)($2.75) - (75)($2.75) = $0.
However, this does not take into account possible implicit costs, which may result in negative economic profit.
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