Question

Mr. Jernigan owns a piece of land on which he grows corn. Corn production annually requires ​$2,000 in​ seed, ​$7,000 in​ fertilizer, and ​$6,000 in pesticides. Mr. Jernigan uses his own labor to grow the corn and therefore hires no workers. If Mr. Jernigan did not use his time to grow​ corn, he would instead be able to sell​ insurance, earning ​$25,000 per year.Suppose another farmer has just offered to pay Mr. Jernigan rent of ​$15,000 per year for use of the land.If Mr. Jernigan refuses to rent the land to another​ farmer, then what will be his accounting costs from farming corn himself on his​ land? What will be his economic​ costs?Mr.​ Jernigan's accounting costs will be ​

Answer 1

Mr. Jernigan's accounting costs for farming corn are $15,000, which include expenses for seeds, fertilizer, and pesticides. His economic costs are $55,000, which include his accounting costs plus the forgone salary from alternative employment and the potential rental income from the land.

Step-by-step explanation:

Accounting costs refer to the direct expenses Mr. Jernigan incurs while farming. His accounting costs for farming the corn include the monetary expenses for seed ($2,000), fertilizer ($7,000), and pesticides ($6,000). Therefore, the total accounting costs equate to $15,000 ($2,000 + $7,000 + $6,000).

Economic costs, on the other hand, include both the explicit costs (like those mentioned above) and the opportunity costs associated with the production. Mr. Jernigan's opportunity cost includes the forgone salary from selling insurance ($25,000) and the rent he could earn by renting out the land ($15,000). Adding these opportunity costs to the accounting costs, his total economic costs would be $55,000 ($15,000 + $25,000 + $15,000).

Answer 2

Explicit costs are:

• Annual cost of Seed=$2,000.

• Annual cost of ​ Fertilizer=$7,000

• Annual cost of Pesticides=$6,000

Implicit costs:

• Insurance earning forgone= ​$25,000
• rent forgone on his piece of land= ​$15,000

1. If Mr. Jernigan refuses to rent the land to another​ farmer, is accounting costs for farming from his own land = $0.
2. His economic cost =Explicit cost+implicit cost= =$2,000+$7,000+$6,000+$25,000+$15,000= $55,000
3. Mr.​ Jernigan's accounting costs = Explicit cost

=$2,000+$7,000+$6,000= $15,000

Step-by-step explanation:

Economic cost is means prudence of one course of action over another or alternative forgone. We have to consider money, time, and other resources cost. It is also known as implicit cost.

Accounting costs are also known as explicit costs. There are money paid out to other for day-to-day running of the business. They include cost of raw materials,wages, rent, fuelining expenses, etc.