Economics : Micro 4
4th Edition
ISBN: 9781305436855
Author: MCEACHERN
Publisher: CENGAGE L
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Question
Chapter 7, Problem 1.1PA
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
Expert Solution & Answer
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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[5 marks]
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[6 marks]
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[3 marks]
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(i)
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(ii)
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[2 marks]
[2 marks]
[Hint: For each of parts (i)-(iii) you are being asked to comment on what happens to
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