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Tara is considering leaving her current job, which pays $56,000
per year, to start a new company that manufactures a line of
special pens for personal digital assistants. Based on market
research, she can sell about 160,000 units during the first year at
a price of $20 per unit. With annual overhead costs and operating
expenses amounting to $3,160,000, Tara expects a profit margin of
25 percent. This margin is 6 percent larger than that of her
largest competitor, Pens, Inc. a. If Tara decides to embark on her
new venture, what will her accounting costs be during the first
year of operation? Her implicit costs? Her total opportunity costs?
b. Suppose that Tara’s estimated selling price is lower than
originally projected during the first year. How much revenue would
she need to earn positive accounting profits? Positive economic