Farmer Jane grows wheat on land that is bought and paid for.She figures her profit per acre is $60 because she puts $30 of purchased inputs onto each acre,$10 worth of her time into working on each acre,and the harvested wheat sells for $100.Farmer Jane

Question

Quizplus · Accepted Answer

Farmer Jane has forgotten to include the opportunity cost of the land in her calculation of profit. As she owns the land free and clear, she doesn't incur any explicit costs for it, but she incurs an opportunity cost by using it to grow wheat instead of renting it out or selling it for some other use. To accurately calculate economic profit, she should incorporate the opportunity cost of the land into her calculation.

Farmer Jane Grows Wheat on Land That Is Bought and Paid