Harvey quit his job at State University, where he earned $65,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $70,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 20,000 units of software at $50 for each unit. Of the $50 per unit, $45 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.
The economic profits of Harvey's firm in the first year were
$100,000.
$77,000.
$23,000.
$1,000,000.