Question

Alex quit his job at State University where he earned S45,000 a year to start extreme gaming software business. To start the business, he cashed in $100,000 in bonds that was earning him 10 percent interest annually to buy equipment. His forgone entrepreneurial income was $5,000 a year. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, S55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building 1.Refer to the above information and list the items that makes the explicit cost and calculate total the explicit costs of the firm in the first year: (8points) 2. Refer to the above information, and list the items that makes the implicit cost and calculate the total implicit costs of the firm in the first year: (6points) 3. Refer to the above information. How much economic profit did Alex make in the first year were. (10points) 4. Refer to the above information. How much accounting profit did Alex make in the first year were. (6points) 1

please answer all 4 please! thank you!

Answer 1

1) Explicit costs = cost of production,packaging,marketing,wages and rent

= 55*11000

= 605000

2) Implicit costs = foregone university earning+foregone income+foregone interest

= 45000+5000+10% of 100000

= 60000

3) Economic profit = Total revenue - (Explicit+implicit costs)

= (11000*75)-(605000+60000)

= 825000-665000

= 160000

4) Accounting profit = Total revenue - Explicit costs

= 825000-605000

= 220000