Question: Until recently, you worked for a software development firm at a yearly salary of $35,000. After a couple of years, you decide to open your own business. Planning to be the next Bill Gates, you quit your job, cash in a $10,000 savings account (which pays 5% interest), and use the money to buy the latest computer hardware to use in your business. You also convert a basement apartment in your house, which you have been renting to a student for $250 per month (including utilities), into a workspace for your new software firm.

You lease some office equipment for $3,600 per year and hire two part-time programmers, whose combined salary is $25,000 per year. You also figure it costs around $50 per month to provide heat and light for your new office.

a. What are the total annual explicit costs of your new business? List each item and the amount, and then total them.

b. What are the total annual implicit costs? List each item and the amount and then total them.

c. At the end of your first year, your accountant cheerfully informs you that your total sales for the year amounted to $55,000. She congratulates you on a profitable year. Are her congratulations warranted? Why or why not?