Chris currently works for a software development firm as a programmer / analyst and earns a net salary of $65,000 per year. She is also contemplating opening her own firm (Bit-By-Bit Solutions, Inc.) and is keenly aware of the intense level of competition in her geographic market. If she opens her own firm, she will have to quit her job and use her accumulated savings of $60,000 to secure an office (1 year lease), furniture, and the necessary productive capital (PC's, Servers, Software, etc) (Note: The furniture and productive capital are purchased outright and not leased or rented). Her accumulated savings are currently earning 8 percent per year in a money market growth fund. Given her knowledge of the geographic market in which she would operate, she believes that she can secure and maintain a total of 15 accounts (firms that she produces software and consults for) at an average monthly rate of $15,000 per account per month. In order to adequately service these 15 firms, she will have to hire a programmer / analyst at the going market salary rate and will incur monthly general and administrative expense of $1,800 per month. Assume all depreciation expenses and relevant taxes are accounted for in the above scenario. If Chris elects to open her own firm: a. Her opportunity cost is $125,000. b.Shewill earn an economic profit of $78,400. c.She will earn an economic profit of $8,600. d.None of the above are correct.
Chris currently works for a software development firm as a programmer / analyst and earns a net salary of $65,000 per year. She is also contemplating opening her own firm (Bit-By-Bit Solutions, Inc.) and is keenly aware of the intense level of competition in her geographic market. If she opens her own firm, she will have to quit her job and use her accumulated savings of $60,000 to secure an office (1 year lease), furniture, and the necessary productive capital (PC's, Servers, Software, etc) (Note: The furniture and productive capital are purchased outright and not leased or rented). Her accumulated savings are currently earning 8 percent per year in a
If Chris elects to open her own firm:
a. Her opportunity cost is $125,000.
b.Shewill earn an economic profit of $78,400.
c.She will earn an economic profit of $8,600.
d.None of the above are correct.
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