Happy Cows is a dairy farm that is currently earning $75,000 in economic profit. The managers of Happy Cows are considering adding a second dairy farm, which will generate an additional $30,000 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 key to this question is understanding that the addition of a second farm should not reduce the economic profit of the first farm to below what the second farm would add ($30,000). Since the first farm is currently earning $75,000, to justify the addition of the second farm (assuming it brings in $30,000), the first farm's profits after any managerial diseconomies should not fall below $45,000. This ensures that the total economic profit from both farms exceeds the current profit of the first farm alone.

Happy Cows Is a Dairy Farm That Is Currently Earning