Question

Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The implicit costs of Harvey's firm in the first year were Multiple Choice $220,000. $60,000. $105,000. $825,000.

Answer 1

Answer:

$60,000

Explanation:

Calculation to determine what The implicit costs of Harvey's firm in the first year were

First step is to calculate the Total revenue

Total revenue = 11000 × $75

Total revenue=$825,000

Second step is to calculate the Explicit cost

Explicit cost = 11000 × $55

Explicit cost= $605,000

Third step is to calculate the profit

Profit = $825,000-$605,000

Profit=$220,000

Now let calculate the Implicit cost

Using this formula

Implicit cost =Profit-(Amount earned per year +Forgone entrepreneurial income+Bond at 10% interest per annum)

Let plug in the formula

Implicit cost=$220,000-[$45,000+$5,000+($100,000+10%*$100,000)]

Implicit cost=$220,000-[$45,000+$5,000+($100,000+$10,000)]

Implicit cost=$220,000-($45,000+$5,000+$110,000)

Implicit cost=$220,000-$160,000

Implicit cost=$60,000

Therefore The implicit costs of Harvey's firm in the first year were $60,000