The MagicSoft software company has a proposal to the city council of Alva, Florida, to relocate there. The proposal claims that the company will generate $3.3 million for the local economy by the $1 million in salaries that will be paid. The city council estimates that 70% of the salaries will be spent in the local community and 70% of that money will again be spent in the community, and so on. What is the correct estimate of the amount generated to the local economy?

The correct estimate of the amount generated to the local economy is $3,333,333.

Step-by-step explanation:

The amount the expected to be generated for the local economy = $3.3 million

The amount of salaries that will generate $3.3 million = $1 million

The percentage of the amount of the salaries and the subsequent earnings expected to be spent on the local community = 70%

Therefore, we have;

For a first amount of 1 million into the economy, the next amount to into the economy is 70/100 × 1 million = 700,000, then we have 70/100 × 700,000 and so on, which is a geometric sequence, with first term, a = $1 million, the common ratio, r = 70/100 = 0.7, the number of terms = Infinity = ∞

The sum of a geometric sequence to infinity is given as follows;

Substituting the known values gives;

Therefore, the correct estimate of the amount generated to the local economy by the $1 million salaries that will be paid = $3,333,333..