Question

Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce. Refer to Scenario 13-3. Ziva's economic profit from farming equals a. −$130. b. $170. c. $130. d. −$80.

Answer 1

Answer:

The correct answer is:

-$80 (d.)

Explanation:

in order to calculate this, we have to determine the total income earned from farming, and the total income that could have been earned if Ziva had done her consultancy service, and calculate the difference. This is shown as follows:

farming business

cost of seeds = $130

income from seeds = $300

Net income from farming = 300 - 130 = $170

Home-organizing service

charge per hour = $25

time spent on field that would have been used for consultancy = 10 hours

total amount that would have been earned for consultancy = 25 × 10 = $250

Difference between income earned for farming and the income that would have been earned for home-organizing serving = 170 - 250 = -$80

Note that the negative sign is there because Ziva indulged in the activity with the lesser income so she effectively made an economic loss instead of  a profit (she made a negative profit).