Answer to Question #58087 in Microeconomics for Katie

Question #58087
Farmer Mcdonald gives banjo lessons for $20 an hour. One day, instead of giving banjo lessons, he spends 10 hours planting $100 worth of seeds on his farm. The seeds yield crops that he can sell for $200. What are the accounting costs, economic costs, accounting profit, and economic profit associated with growing crops?
Expert's answer
Accounting cost is monetary value of resources used in performing an activity. In our case it is the worth of seeds - $100.
Economic cost differs from accounting cost because it includes opportunity cost. In our case opportunity cost is $20per hour×10hours=$200. So economic cost is $100+$200=$300.
Accounting profit is consists of revenue minus explicit costs: $200-$100=-$100.
Economic profit consists of revenue minus implicit (opportunity) and explicit (monetary) costs:
$200-$300=-100$ (loss)

$100; $300; $100; -100$ (loss)

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!


Assignment Expert
03.12.18, 15:37

Dear Mariyam Zehra, You're welcome. We are glad to be helpful. If you liked our service please press like-button beside answer field. Thank you!

Mariyam Zehra
30.11.18, 11:17

Well explained

Leave a comment

Ask Your question

New on Blog