Question

Homework: Ch 12 Homework 10 of 18 (18 Hw Score: 90.28%, 16.25 of 18 pts Concept: Economic/Accounting Profit 1 peaches per year, which sell for $3.00 each. Suppose the interest rate on savings is 4 percent and that the farmer couid otherwise have eamed $25.000 as a shoe salesman What is the farmers economic proft? What is the farmers accounting prot The peach farmer eams accounting profit of s(Enter your response as an indege

Answer 1

First we estimate Explicit Cost in the given case

Explicit Cost=Rent for equipment+ Wages=80000+150000=$230,000

Now, we estimate the implicit cost in the given case

Implicit Cost=opportunity costs=Interest income+ Salary that could have been earned

Implicit Cost=1000000*4%+25000=$65000

Total Revenue is given by

Total Revenue=Price of peaches*output=3*100000=$300,000

a)

Total economic cost=Explicit Cost+ Implicit cost=230000+65000 =$295,000

Economic Profit=Total Revenue-Total economic cost=300000-295000=$5000

b)

Accounting Profit=Total Revenue-Explicit Cost=300000-230000=$70,000