Question

A farmer has cash costs of S1.50/bu for his corn. The opportunity cost of his labor is S0.30/bu and the opportunity cost of his land (which he owns) is $0.40/bu. If he sells his corn for $2.50/bu, then his economic profits are:_______ A) $2.50/bu B) S1.00/bu C) S0.30/bu D) S0.70/bu E) can't tell based on the information given

Answer 1

Answer:

C. $0.30/bu

Explanation:

Given that

Cash cost = $1.50/bu

Opportunity cost of labour = $0.30/bu

Opportunity cost of Land = $0.40/bu

Sales from corn = $2.50/bu

Recall that economic profits = Total income - Total expenses - opportunities cost

Therefore

Economic profits = 2.50 - 1.50 - (0.30 + 0.40)

= 2.50 - 1.50 - 0.70

= 0.30

Therefore, economic profits = $0.30/bu