Katherine gives piano lessons for $15 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
A)$100, and her economic profits are $25.
B)$100, and her economic profits are $75.
C)$25, and her economic profits are $100.
D)$75, and her economic profits are $125.

Question

Quizplus · Accepted Answer

Katherine's accounting profit is $150 (revenue) - $50 (cost of seeds) = $100. Her economic profit also considers the opportunity cost of her time. She spent 5 hours planting seeds, which could have been used to give piano lessons, earning $15 per hour. Thus, the opportunity cost is 5 hours * $15 = $75. Therefore, her economic profit is $100 (accounting profit) - $75 (opportunity cost) = $25.

Katherine Gives Piano Lessons for $15 Per Hour