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

Question

Quizplus · Accepted Answer

Implicit costs are the opportunity costs of using resources owned by the firm for its own use rather than selling those resources. For Harvey, these include his forgone salary of $45,000, forgone entrepreneurial income of $5,000, and the forgone interest from the bonds of $10,000 (10% of $100,000). Adding these together gives $45,000 + $5,000 + $10,000 = $60,000.

Harvey Quit His Job at State University, Where He Earned