Question

What is the estimated economic profit in this example if the farmer plants watermelon on 500 acres??

Answer 1

The economic profit is calculated by,

Economic Profit = Total Revenue (TR) – ( Explicit Cost + Implicit Cost)

Total Revenue$= 500 acre 6400 = 3200000$

Explicit Cost (Cost of land , Labor , capital) per acre = Machinery Ownership costs + Land Charge + overheads $= 155+120+350 = 625$

Explicit Cost for 500 acres $= 500 acres 625 = 312500$

Implicit Costs are not given

Economic Profit $= 3200000 - 312500 = 2887500$

Hence the economic profit is  $2887500$.

Describe Economic Profit?

The difference between the revenue generated by the sale of an output and the prices of all inputs used, as well as all opportunity costs, is known as an economic profit. Possibility expenses and explicit costs are subtracted from earned revenues to establish economic profit. Economic profit is necessary because it helps examine an industry's financial and economic progress.

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