Answer:
$-675,000
Explanation:
here is the full question
Suppose a farmer in Georgia begins to grow peaches. He uses$1,000,000 in savings to purchase land, he rents equipment for$80,000 a year, and he pays workers $130,000 in wages. Inreturn, he produces 200,000 baskets of peaches per year, which sell for $3.00 each. Suppose the interest rate on savings is 3 percent and that the farmer could otherwise have earned $35,000 as a shoe salesman.
Economic profit = accounting profit - implicit cost
Accounting profit= total revenue - explicit cost
Implicit cost is the cost of the next best option forgone when one alternative is chosen over other alternatives
Explicit cost includes the amount expended in running the business. They include rent , salary and cost of raw materials
total explicit cost = (1,000,000 + $80,000 + $130,000) = $1,210,000
total revenue = price x output
$3 x 200,000 = $600,000
Accounting profit = $600,000 - $1,210,000 = $-610,000
implicit cost = amount he could have earned working as a sales man = $35,000
Interest on loan = 0.03 x 1,00,000 = 30,000
total = 35,000 + 30,000 = 65,000
economic profit = $-610,000 - 65,000 = $-675,000
The peach farmer earns economic profit of $
