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 ​$100 comma 000100,000 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 55 percent and that the farmer could otherwise have earned ​$25 comma 00025,000 as a shoe salesman. What is the​ farmer's economic​ profit

Answer 1

-$475,000

Step-by-step explanation:

Total revenue = Baskets of peaches × Price

= 100,000 × $3

= $300,000

Explicit cost:

= Rent equipment + wages

= $100,000 + $100,000

= $200,000

Implicit cost:

= Land × Interest + salesman earned

= $1,000,000 × 0.55 + $25,000

= $575,000

Total cost = Explicit cost: + Implicit cost

= $200,000 + $575,000

= $775,000

Economic profit = Total revenue - Total cost

= $300,000 - $775,000

= -$475,000