Alex quit his job at State University where he earned $45,000 a year. He figures

Question

Alex 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.

02. Refer to the above information. The explicit costs of the firm in the first year were:

Explanation / Answer

Explicit costs will be the costs that are directly incurred.

Per unit costs:$55. No of units = 11000. So cost of goods sold = 11000*55 = $1,65,000. Foregone income = $5000.

So the explicit costs of the firm in first year = $1,70,000.

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