Suppose a farmer in georgia begins to grow peaches. he uses $1,000,000 in savings to purchase land, he rents equipment for $90,000 a year, and he pays workers $150,000 in wages. in return, he produces 200,000 baskets of peaches per year, which sell for $3.00 each. suppose the interest rate on savings is 5 percent and that the farmer could otherwise have earned $35,000 as a shoe salesman. what is the farmer's economic profit? the peach farmer earns economic profit of

The farmer's economic profit is $2,75,000.

Explanation:

Cost Incurred for Growing peaches (Explicit Cost) :

Rents equipment = $90,000 a year

Paid Wages = $1,50,000

Total Explicit cost = $2,40,000

Total Revenue(TR) Earned:

TR = Number of baskets of peaches produced per year × selling price of each peaches

= 2,00,000 × $3.00

= $6,00,000

Opportunity Cost (Implicit Cost):

Interest rate on savings ( 5 %) = 5% of $1,000,000

                                                  = $50,000

Farmer earn as a shoe salesman = $35,000

Total implicit cost = $85,000

Economic Profit:

Economic Profit = Total Revenue - Implicit cost - Explicit cost

                            = $6,00,000 - $85000 - $2,40,000

                            = $2,75,000

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