Question 3 question 4 QUESTION 3 Hamish currently owns an avocado farm which in

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Question 3 question 4

QUESTION 3 Hamish currently owns an avocado farm which in the past has been highly profitable with revenues of $75,000/year. Recently, a large storm killed his trees and destroyed a large amount of his specialised avocado farming equipment. Costs are estimated to be at least $30,000 to replace the specialised equipment. He is trying to decide whether to replant new avocado trees or to plant orange trees instead Select the item from the list provided to make the following statements true For Hamish to consider leaving the avocado market, he must be experiencing a / an 1. Accounting profit 2. -$2000/year 3. implicit cost If Hamish chose to replant and grow avocados, he would 4. know he made the correct decision in later years if he makes 5. a / an Economic profit Economic loss 6. Anormal profit 7. $12000/year 8. $33000lyear 9. Explicit cost 10. $45000/year 11. $1900 From an economic perspective, a / an Hamish in growing avocados would be his opportunity cost. for

Explanation / Answer

3. i). Economic Loss - Economic loss includes both monetary as well as non-monetary loss. Thus, if Hamish is not earning enough and he can make more profits by venturing in other business then he must exit the market.

ii). A normal profit - Normal profits are profits earned in the long run wherein the accounting profits in the long run turns out to be zero and thus the market comes in equilibrium.

iii). implicit cost - Implicit cost is the cost incurred by choosing one activity over another. It is basically the income that is lost that could have been earned if an alternative activity was performed.

2. His weekly Economic profit will be (295+104)-357 = $42

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