ECON MICRO (with ECON MICRO Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
ECON MICRO (with ECON MICRO Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
5th Edition
ISBN: 9781305631946
Author: William A. McEachern
Publisher: Cengage Learning
Question
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Chapter 7, Problem 1.1P
To determine

Whether Amos McCoy is currently earning an economic profit or not.

Concept Introduction:

Amos McCoy is not currently making an economic profit. Difference between the revenue received from the sale of an output and the opportunity cost of the inputs is called economic profit. Total earnings calculated according to generally accepted accounting principles (GAAP) is called accounting profit.

Expert Solution & Answer
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Explanation of Solution

Both alternatives are considered (i.e explicit and implicit cost) while estimating economic cost. Accounting cost does not take into consideration implicit cost. Opportunity cost associated with raising soyabean is being ignored while calculating accounting profit. While raising corn at a profit of $100 per acer, profit of $200 per acer is being ignored on soyabean. Economic loss of $100 is being incurred ($200-$100=$100). Amos McCoy is not currently making an economic profit. In the end, it should be concluded that he should grow soyabeans and get out of the corn business.

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ECON MICRO (with ECON MICRO Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)

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