Question

Suppose a farmer in georgia begins to grow peaches. he uses​ $1,000,000 in savings to purchase​ land, he rents equipment for ​$60 comma 00060,000 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 ​$4.004.00 each. suppose the interest rate on savings is 11 percent and that the farmer could otherwise have earned ​$35 comma 00035,000 as a shoe salesman. what is the​ farmer's economic​ profit?

Answer 1

Economic profit=-$835,000

Step-by-step explanation:

The economic profit can be expressed as;

Economic profit=total revenue-total cost

where;

total revenue=sales revenue+interest on savings

sales revenue=(4×100,000)=$400,000

interest on savings=1,000,000×(11/100)×1=$110,000

sales revenue+interest on savings=(400,000+110,000)=$510,000

total cost=land cost+equipment+wages+opportunity cost

total cost=(1,000,000+60,000+150,000+100,000+35,000)=$1,345,000

replacing;

Economic profit=(510,000-1,345,000)=-$835,000

Since the economic profit is negative it implies an economic loss of $835,000