Answer:
option (a) $160,000
Explanation:
The economic profit is calculated as:
Economic profit = Total revenue - ( Explicit cost - Implicit cost )
Now,
Total revenue = Units sold × Unit price
= 11,000 × $75
= $825,000
Explicit cost = Units sold × Per unit cost of production
= 11,000 × $55
= $605,000
also,
Harvey quit his job at State University where he earned $45,000 a year
foregone entrepreneurial income to be $5,000 a year
To start the business, he cashed in $100,000 in bonds that earned 10% interest annually to buy a software company
Therefore,
Implicit cost = $45,000 + $5,000 + ( 10% of $100,000 )
= $50,000 + $10,000
= $605,000
Hence,
Economic profit = $825,000 - ( $605,000 - $605,000 )
= $160,000
so the correct answer is option (a) $160,000
