54 546
Assignments Done
98,2%
Successfully Done
In November 2017
Your physics homework can be a real challenge, and the due date can be really close — feel free to use our assistance and get the desired result.
Be sure that math assignments completed by our experts will be error-free and done according to your instructions specified in the submitted order form.
Our experts will gladly share their knowledge and help you with programming homework. Keep up with the world’s newest programming trends.

Answer on Microeconomics Question for Abdiasiis Mohamed

Question #23851
Question 1
Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a
current market value of $4 million. Bowen owes his local bank $3 million. Last year,
Bowen sold $5 million worth of cotton. His variable operating costs were $4.5 million;
accounting depreciation was $40,000, although the actual decline in value of Bowen’s
machinery was $60,000 last year. Bowen paid himself a salary of $50,000, which is not
considered part of his variable operating costs. Interest on his bank loan was $400,000.
If Bowen worked for another farmer or a local manufacturer, his annual income would be
about $30,000. Bowen can invest any funds that would be derived, if the farm sold, to
earn 10 percent annually. (Ignore taxes.)
a. Compute and interpret Bowen’s accounting profits.
b. Compute and interpret Bowen’s economic profits.
Expert's answer
The accounting profit is the difference between total revenue and total cost excluding the economic cost (opportunity cost) of owner-supplied resources such as time and capital. On the other hand, In the economic cost, we include the opportunity cost in our calculations.

Accounting profit = 5,000,000 - 4,500,000 - 40,000 - 400,000 - 50,000 = $10,000
Economic profit = 5,000,000 - 4,500,000 - 60,000 - 400,000 - 30,000 - 4,000,000*10% = -$390,000

Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $4 million. Bowen owes his local bank $3 million. Last year, Bowen sold $5 million worth of cotton. His variable operating costs were $4.5 million; accounting depreciation was $40,000, although the actual decline in value of Bowen’s machinery was $60,000 last year. Bowen paid himself a salary of $50,000, which is not considered part of his variable operating costs. Interest on his bank loan was $400,000. If Bowen worked for another farmer or a local manufacturer, his annual income would be about $30,000. Bowen can invest any funds that would be derived, if the farm sold, to earn 10 percent annually. (Ignore taxes.)

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!

Comments

No comments. Be first!

Leave a comment

Ask Your question