Answer :
Answer:
a) $305,000
b) $370,000
Explanation:
Given:
cost of land purchased = $1,000,000
Rent on equipment = $80,000
Wages paid = $150,000
Number of baskets produced = 200,000
Selling cost of basket = $3.00 each
Interest rate on savings = 2%
Earning as a shoe salesman = $45,000
Now,
Total revenue = Number of baskets produced × Selling cost of basket
= 200,000 × $3
= $600,000
Explicit cost = Rent on equipment + Wages paid
= $80,000 + $150,000
= $230,000
Implicit cost = Interest on amount spent to buy land + Earning as a shoe salesman
= 2% of $1,000,000 + $45,000
= $20,000 + $45,000
= $65,000
Therefore,
The total cost involved = Explicit cost + Implicit cost
= $230,000 + $65,000
= $295,000
a) The peach farmer earns economic profit = Total revenue - Total cost
= $600,000 - $295,000
= $305,000
b) The peach farmer earns accounting profit = Total revenue - Explicit cost
= $600,000 - $230,000
= $370,000
(a)- The peach farmer earns economic profit of $305,000.
(b)- The peach farmer earns accounting profit of $370,000.
Economic and accounting profit
a. Economic profit
Explicit cost = $80,000 + $150,000
Explicit cost= $230,000
Implicit cost =($1,000,000 ×2%)+ $45,000
Implicit cost= $20,000 + $45,000
Implicit cost= $65,000
Economic profit= Total revenue - Total cost
Economic profit=(200,000×$3)-($230,000 + $65,000)
Economic profit = $600,000 - $295,000
Economic profit = $305,000
b. Accounting profit
Accounting profit = Total revenue - Explicit cost
Accounting profit = $600,000 - $230,000
Accounting profit = $370,000
Inconclusion the peach farmer earns economic profit of $305,000 and the peach farmer earns accounting profit of $370,000.
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