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

ID: 1157838 • Letter: S

Question

Suppose a farmer in Georgia begins to grow peaches. He uses? $1,000,000 in savings to purchase? land, he rents equipment for

?$100 comma 000100,000

a? year, and he pays workers

?$150 comma 000150,000

in wages. In? return, he produces

100 comma 000100,000

baskets of peaches per? year, which sell for

?$3.003.00

each. Suppose the interest rate on savings is

percent and that the farmer could otherwise have earned

?$45 comma 00045,000

as a shoe salesman.

What is the? farmer's economic? profit?

What is the? farmer's accounting profit?

Revenue = 100,000 x $3 = $300,000

(a) Economic profit ($) = Revenue - Explicit costs - Implicit costs

= Revenue - (Rent + Wages) - (Interest foregone on savings + Earnings foregone)

= 300,000 - (100,000 + 150,000) - [(1,000,000 x 4%) + 45,000]

= 300,000 - 250,000 - (40,000 + 45,000)

= 50,000 - 85,000

= -35,000

(b) Accounting profit ($) = Revenue - Explicit costs

= Revenue - (Rent + Wages)

= 300,000 - (100,000 + 150,000)

= 300,000 - 250,000

= 50,000

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.