Problem Set #1 Saved Help Save Jamie is considering leaving her current job, whi

Question

Problem Set #1 Saved Help Save Jamie is considering leaving her current job, which pays $75,000 per year, to start a new company that develops applications for smartphones. Based on market research, she can sell about 50,000 units during the first year at a price of $4 per unit. With annual overhead costs and operating expenses amounting to $145,000, Jamie expects a profit margin of 20 percent. This margin is 5 percent larger than that of her largest competitor, Apps, Inc. 1.66 points a. If Jamie decides to embark on her new venture, what will her accounting costs be during the first year of operation? Her implicit costs? Her opportunity costs? Accounting costs: $ Implicit costs: $ Opportunity costs: $ eBook b. Suppose that Jamie's estimated selling price is lower than originally projected during the first year. How much revenue would she need in order to earn positive accounting profits? Positive economic profits? ReferencesRevenue needed to earn positive accounting profits: Revenue needed to earn positive economic profits: $

Explanation / Answer

A)

Accounting costs is the total explicit costs of the company during the fiscal year and explicit cost, given in the question, are overhead costs and operating expenses which is amounting to $145,000.
Hence, Accounting Cost = $145,000

If she starts the venture by leaving the job she is sacrificing the opportunity cost of $75000, which is nothing but the implicit cost.
Hence Opportunity Cost = $220,000

B)

Accounting profits = Total revenue – Accounting costs
(Accounting Cost = $145,000)

Hence, to earn positive accounting profit, revenue should be greater than $145,000.

Economic profit = Total revenue – Implicit Cost – Explicit Cost
( Implicit Cost + Explicit Cost = $220,000)

Hence, to earn positive economic profit, revenue should be greater than $220000.

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