Harvey wanted to start his own business so he quit his job at Winona State Unive

Question

Harvey wanted to start his own business so he quit his job at Winona State University where he earned $98,000 a year. He figured his entrepreneurial talent to be worth $15,000 a year. To start the business, he cashed in $125,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 6,000 units of software at $50 each. Per-unit costs were $30 for production, packaging, marketing, employee wages and benefits, and rent on a building.

Give the following: (3 pt each)

i. Total revenues


ii. Total explicit costs


iii. Total implicit costs


iv. Accounting profits or losses


v. Economic profits or losses


vi. Did Harvey make the right decision? Explain in one or two sentences. (5 pt)

Explanation / Answer

1. 300,000 2. 125,000+180,000= 305,000 3. 98,000+15,000+12,500= 125,500 4. 5000 loss 5. 130,500 loss 6. No, cash-wise, he lost out. Economically, he lost out, too. It's possible his decision may pay off in the long run, but for the first year, he made a bad choice.

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