Question

Mr. Jernigan owns a piece of land on which he grows corn. Corn production annually requires ​$4 comma 000 in​ seed, ​$5 comma 000 in​ fertilizer, and ​$8 comma 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 comma 000 per year. Suppose another farmer has just offered to pay Mr. Jernigan rent of ​$20 comma 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 cost will be $____ per year, and his economic costs will be $____ per year.

Answer 1

Accounting cost: 17,000

Economic cost: 62,000

Step-by-step explanation:

Accounting result: sum of explicit revenues less explicit cost:

explicit cost:

$4,000 in​ seed, ​$5,000 in​ fertilizer, and ​$8000 in pesticides

Total: 17.000

Economic result: sum of accounting result and opportunity cost for each factor

Where:

opportunity cost is the cost for the bvest rejected alternative of doing this activity.

Labor factor: 25,000 insurance seller wages

Land factor: 20,000

Total opportunity: 45,000

Accounting cost 17,000

Economic cost: 62,000