7. The restriction on liquor licenses enables current bar owners to earn profits of $5000 per year. Remember that our defintion of profit is such that this means that owners earn $5000 more than they could in their next best opportunity. Even after paying herself a market salary and market interest on her own investment, the typical owner earns an additional $5000.

   The license is an asset that enables anyone who owns one to earn this extra $5000 per year so it is worth approximately what any other asset which returns this kind of revenue stream would be worth, in other words, it's worth the amount that would need to be invested (at 5%) to earn $5000 per year. It's probably obvious that this is $100,000 (5% of 100,000 is 5000), but we also learned a simple formual for the value, V, of such an asset, where R is the revenue earned per year (5000 in this case) and I is the interest rate (5% in this case.)

V = R/I
V = 5000/.05
V = 100,000
Restricting the number of licenses to the current level gives current license holders an asset worth about $100,000. They would probably be willing, if not happy, to pay almost that much to assure that the plan goes through.

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