Question

Suppose a farmer in georgia begins to grow peaches. he uses​ $1,000,000 in savings to purchase​ land, he rents equipment for ​$ 100 comma 000 100,000 a​ year, and he pays workers ​$ 100 comma 000 100,000 in wages. in​ return, he produces 150 comma 000 150,000 baskets of peaches per​ year, which sell for ​$ 4.00 4.00 each. suppose the interest rate on savings is 4 4 percent and that the farmer could otherwise have earned ​$ 45 comma 000 45,000 as a shoe salesman.

Answer 1

If a farmer in georgia who grows peaches has an initial investment in his business of -$1,000,000 and a rental equipment fee of -$100,000 and wages of -$100,000, in one year he spends $1,200,000 in business. In returns he makes $150,000 baskets of peaches which sell for $4 a basket which makes him $600,000 a year. He nets a loss of $600,000 in a year ($-1,200,000+$600,000) If the interest rate on his savings, had he invested that $1,000,000 he would have had $1,040,000 by the end of the year in his investment account. If you add that to his shoe sales income of $45,000 he would have had $1,095,000 by the end of the first year. If he would have sold shoes instead of growing peaches he would have $1,695,000 more dollars by the end of the first year.