Suppose a farmer in Georgia begins to grow peaches. He uses $1,000,000 in saving

Question

Suppose a farmer in Georgia begins to grow peaches. He uses $1,000,000 in savings to purchase land, he rents equipment for $60,000 a year, and he pays workers $120,000 in wages. In return, he produces 150,000 baskets of peaches per year, which sell for $3.00 each. Suppose the interest rate on savings is 5 percent and that the farmer could otherwise have earned $40,000 as a shoe salesman What is the farmer's economic profit? The peach farmer earns economic profit of $. (Enter your response as an integer.) What is the farmer's accounting profit? The peach farmer earns accounting profit of S(Enter your response as an integer)

Explanation / Answer

Answer
Implicit cost=salary as shoeman +interest on capital
=40000+1000000*0.05
=90000
Explicit cost=rent+wages
=60000+120000
=180000
Revenue=P*Q=150000*3=450000
Economic profit=Revenue-implicit cost-explicit cost
=450000-180000-90000=180000
Accounting profit=revenue-explicit cost
=450000-180000=270000

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