Katherine gives piano lessons for $20 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are

Question

Quizplus · Accepted Answer

Katherine's accounting profits are calculated as follows:
Revenues from piano lessons = 20 * hours of lessons
Revenues from flower sales = $150
Costs of planting seeds = $50
Total revenues = 20 * hours of lessons + $150
Total costs = $50
Accounting profits = Total revenues - Total costs

We know that Katherine spent 5 hours planting seeds, but we don't know how many hours of piano lessons she gave. Therefore, we can't determine Katherine's accounting profits for certain. However, we do know that her revenues from flower sales are $150 and her costs of planting seeds are $50. So her total profits are $100.

However, in order to calculate Katherine's economic profits, we need to account for the opportunity cost of her time. If Katherine could have earned $20 per hour by giving piano lessons instead of planting flowers, then her economic profits are:
Total revenues = $150
Total costs = $50 + (5 hours x $20 per hour) = $150
Economic profits = Total revenues - Total costs = $0

Thus, Katherine's accounting profits are $100, but her economic profits are $0 because she could have earned the same amount of money (with less effort) by simply giving more piano lessons instead of planting flowers.

Katherine Gives Piano Lessons for $20 Per Hour