Final answer:
Economic profit is calculated by subtracting opportunity costs from net income. The opportunity cost here is $30,000, which is the rental income forfeited by using the land for the factory instead of renting it out. To find the economic profit, deduct this amount from the net income of Diltex Farm Supply.
Step-by-step explanation:
The question refers to the calculation of a firm's economic profit, which is derived from accounting profit by subtracting opportunity costs. The opportunity cost in this scenario is the rental income the firm could have earned if it rented out the land instead of using it for the factory, which is $30,000. To determine the economic profit, we would subtract this opportunity cost from the net income or accounting profit. If the firm's net income is any of the provided options (A. $40,400, B. $22,500, C. $47,500, D. $28,500), the economic profit would be the net income minus $30,000.
Example Calculation
If we were given that the firm's net income (accounting profit) is $47,500, the economic profit would be:
Accounting Profit - Opportunity Cost = Economic Profit
$47,500 - $30,000 = $17,500
Therefore, the economic profit last year would have been $17,500.