Suppose a farmer in Georgia begins to grow peaches. He uses $1,000,000 in savings to purchase land, he rents equipment for $50 comma 000 a year, and he pays workers $140 comma 000 in wages. In return, he produces 250 comma 000 baskets of peaches per year, which sell for $3.00 each. Suppose the interest rate on savings is 2 percent and that the farmer could otherwise have earned $40 comma 000 as a shoe salesman. What is the farmer's economic profit? The peach farmer earns economic profit of $ nothing.

($500,000)

Explanation:

Economic profit = revenue - explicit costs  - implicit costs (opportunity cost)

The revenue is = $3.00 x 250,000 peaches

                         = $750,000

The explicit costs are = land cost + equipment rent + salaries

                                    = $1,000,000 + 50,000 + 140,000

                                    = $1,190,000

The implicit costs are = interest income + earnings as a shoe salesman

                                    = $20,000 + $40,000

                                    = $60,000

Economic profit = $750,000 - $1,190,000 - $60,000

                          = ($500,000)

Thus, the farmers' total economic profit is actually a total economic loss of $500,000

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