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Production Help Save&ExitSub; You received no credit for this question in the pr

ID: 1143927 • Letter: P

Question

Production Help Save&ExitSub; You received no credit for this question in the previous attlempt Harvey quit his job at State University where he eamed $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial inconse to be $5,000 a year To start the business, he cashed in $100.000 in bonds that earned 10% interest annually to buy a software company, Extreme Gaming. In the first year the fiem sold 11,000 units of software at $75 each Of the $75. 555 goes for the costs of production packaging, marketing, employee wages and benefits, and rent on a building What is the economic profit generated by Extreme Gaming in the first year? Mutiple Choice $155,000

Explanation / Answer

1) Solution: $160,000

Working:

Opportunity cost

Job

45,000

foregone entrepreneurial income

5,000

Interest

10,000

60,000

Accounting profit

Sales: 11,000 *75

825000

Expenses: 11,000 * 55

605000

Difference is accounting profit

220000

Economic Profit:

Accounting profit

220,000

Opportunity cost

60,000

Difference is economic profit

160,000

2) The main difference between the short run and the long run is that

Solution: In the short run, some inputs are fixed and some are variable

Explanation: In the short run, one or more inputs is fixed

3) Which of the following would be an implicit cost for a firm?

Solution: The cost: Of wages foregone by the owner of the firm

Explanation: An implicit cost refers to the cost that has already occurred however not necessarily reported as a separate expense.

Opportunity cost

Job

45,000

foregone entrepreneurial income

5,000

Interest

10,000

60,000

Accounting profit

Sales: 11,000 *75

825000

Expenses: 11,000 * 55

605000

Difference is accounting profit

220000

Economic Profit:

Accounting profit

220,000

Opportunity cost

60,000

Difference is economic profit

160,000

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