Happy Cows is a dairy farm that is currently earning $50,000 in economic profit. The managers of Happy Cows are considering adding a second dairy farm, which will generate an additional $10,000 in economic profit. It is economically sound for the managers of Happy Cows to add the second farm if, after accounting for the managerial diseconomies, the first farm's economic profits exceed______ .

Question

Quizplus · Accepted Answer

The question implies that the addition of a second farm introduces managerial diseconomies that affect the economic profits of the first farm. For the expansion to be economically sound, the first farm's profits after accounting for these diseconomies must still exceed the profits from not expanding. Since the first farm currently earns $50,000 and the second farm would add $10,000 in economic profit, the combined profit would be $60,000. If the first farm's profits need to exceed $40,000 after the diseconomies are accounted for, it suggests that the diseconomies are expected to reduce the first farm's profits by no more than $10,000, maintaining the overall economic advantage of expansion.

Happy Cows Is a Dairy Farm That Is Currently Earning