Harvey quit his job at State University, where he earned $65,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $70,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 20,000 units of software at $50 for each unit. Of the $50 per unit, $45 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.The accounting profit of Harvey's firm in the first year was

Question

Quizplus · Accepted Answer

The accounting profit is calculated as total revenue minus explicit costs. Total revenue is 20,000 units * $50 = $1,000,000. Explicit costs are 20,000 units * $45 = $900,000. Therefore, accounting profit is $1,000,000 - $900,000 = $100,000.

Harvey Quit His Job at State University, Where He Earned