Question

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone 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.
Refer to the above information. The implicit costs of Harvey's firm in the first year were:
a. $50,000.
b. $60,000.
c. $100,000.
d. $150,000.

Answer 1

Answer:

correct option is b. $60,000.

Explanation:

given data

earned = $45,000

foregone entrepreneurial income = $5000

cashed in bonds = $100,000

to find out

implicit costs of Harvey's firm in the first year

solution

we find For the 1st year Implicit cost will be here

Implicit cost = University earnings foregone + Foregone entrepreneurial income + Bond interest foregone      .......................1

put here value we get

Implicit cost = $45,000 + $5,000 + ($100,000 × 10%)

 Implicit cost = $50,000 + $10,000

so   Implicit cost is = $60,000

correct option is b. $60,000.