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 normal profits for Harvey in the first year were

Question

Quizplus · Accepted Answer

Normal profit is the opportunity cost of the resources supplied by the entrepreneur. Harvey's normal profit includes his forgone salary ($45,000), forgone entrepreneurial income ($5,000), and forgone interest from bonds ($10,000). Therefore, his normal profit is $5,000.

Harvey Quit His Job at State University, Where He Earned