Scenario 12-6
Tony is a wheat farmer,but he also spends part of his day teaching guitar lessons.Due to the popularity of his local country western band,Farmer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business.Farmer Tony charges $25 an hour for his guitar lessons.One spring day,he spends 10 hours in his fields planting $130 worth of seeds on his farm.He expects that the seeds he planted will yield $300 worth of wheat.
-Refer to Scenario 12-6.Tony's economic profit equals
A) $-130.
B) $-80.
C) $130.
D) $170.

Question

Quizplus · Accepted Answer

Tony's economic profit is calculated by subtracting both the explicit costs and the opportunity costs from the total revenue. The explicit cost is $130 for seeds. The opportunity cost is $250 (10 hours x $25/hour for guitar lessons). The total revenue from the wheat is $300. Economic profit = $300 - ($130 + $250) = $-80.

Scenario 12-6 Tony Is a Wheat Farmer,but He Also Spends Part of Part