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Anna35 [415]
3 years ago
10

Suppose a farmer in Georgia begins to grow peaches. He uses​ $1,000,000 in savings to purchase​ land, he rents equipment for ​$7

0 comma 00070,000 a​ year, and he pays workers ​$120 comma 000120,000 in wages. In​ return, he produces 250 comma 000250,000 baskets of peaches per​ year, which sell for ​$3.003.00 each. Suppose the interest rate on savings is 22 percent and that the farmer could otherwise have earned ​$40 comma 00040,000 as a shoe salesman. What is the​ farmer's economic​ profit?
Business
1 answer:
Mazyrski [523]3 years ago
8 0

Answer:

Economic profit = $300,000

Explanation:

<em>Economic profit is the difference between the sales revenue and the total of implicit cost and explicit cost</em>

Implicit cost are opportunity costs. For the farmer, these include

Interest on capital forfeited and salaries forfeited

= (22%×  1,000,000) + 40,000

= 260,000

Total cost = Implicit +explicit costs

=  260,000 + 260,000 +70,000 +120,000

 Economic profit =750000- (260,000 +70,000 +120,000)

                         = $300,000

Note that the cost of land is not included because it a capital cost

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<u>Journal Entries</u>

<u>Sr. No                       Particulars                       Debit           Credit</u>

1                    Work in Process Job No. 221        1200

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                    Work in Process Job No. 224      2600

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    Direct Labor Work in Process Job No. 224      2800

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