Question

Mr. Jernigan owns a piece of land on which he grows corn. Corn production annually requires ​$ in​ seed, ​$ in​ fertilizer, and ​$ 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 ​$ per year. Suppose another farmer has just offered to pay Mr. Jernigan rent of ​$ 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?

Answer 1

$21,000

$55,000

Step-by-step explanation:

Here is the complete question :

Mr. Jernigan owns a piece of land on which he grows corn. Corn production annually requires $6,000 in seed, $9,000 in fertilizer, and $6,000 in pesticides. Me. 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 $35,000 per year.

Suppose another farmer has just offered to pay Mr Jernigan rent of $20,000 per year for use of this land.

If Mr. Jernigan refuses to rent the land to another farmer, then what will be his accounting costs from farming corn himself on this land? What will be his economic costs?

Accounting cost or explicit cost includes the amount expended in running the business. Accounting cost is used in calculating accounting profit. They include :

1. cost of the seed
2. cost of fertilizer
3. cost of pesticides

Accounting cost = $6,000 + $9,000+ $6,000 = $21,000

Economic cost or implicit cost is the cost of the next best option forgone when one alternative is chosen over other alternatives. Economic costs and accounting cost is used in calculating economic profit. Economic cost include :

1. amount he would have earned selling issuance
2. amount he would have earned if he rented out the land

Economic cost = $35,000 + $20,000 = $55,000