Question

Mr. jernigan owns a piece of land on which he grows corn. corn production annually requires ​$6 comma 0006,000 in​ seed, ​$3 comma 0003,000 in​ fertilizer, and ​$6 comma 0006,000 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 00025,000 per year. suppose another farmer has just offered to pay mr. jernigan rent of ​$20 comma 00020,000 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?

Answer 1

accounting costs = $15,000

economic costs = $60,000

Step-by-step explanation:

Mr. Jernigan's accounting costs:

seeds = $6,000

fertilizer = $3,000

pesticides = $6,000

total = $15,000

If Mr. Jernigan decided not to farm his land, he could earn:

lost wages = $25,000

rent = $20,000

total = $45,000

Economic costs include both accounting and opportunity costs. Opportunity costs are extra costs incurred or benefits lost from choosing an activity or investment over another alternative.

In this case, Mr. Jernigan's accounting costs = $15,000, and his economic costs = accounting costs + opportunity costs = $15,000 + $45,000 = $60,000