Help Me With This Econ Cost Problem?
Farmer McDonald gives banjo lessons for $20 an hour. One day, he spends 10 hours planting $100 worth of seeds on his farm. What opportunity cost has he incurred? What cost would his accountant measure? If these seeds will yield $200 worth of crops, does Mc Donald earn an accounting profit? Does he earn an economic profit?
His opportunity cost would be $100. He would have made $200 giving 10 hours of banjo lesson. He only made $100 for planting corn for 10 hours. Either way he has earned an economic profit.
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His opportunity cost would be $100. He would have made $200 giving 10 hours of banjo lesson. He only made $100 for planting corn for 10 hours. Either way he has earned an economic profit.
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opp. cost is 300=100 + 20*10. I understand he had to pay for seeds himself. accounting cost is $100, b/c $200 did not change hands.
Accounting profit is 100 = 200-100, economic is -100=200-300
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