Question

1. Suppose you can either farm corn or soybeans. If you grow corn, you earn a Total Revenue of $99,000 and your Explicit Costs are $89,000. If you grow soybeans, you earn a Total Revenue of $110,000 and your Explicit Costs are $98,000. What are the Implicit Costs of growing corn?

a. $110,000

b. $89,000

c. $12,000

d. $10,000

2. Suppose you can either farm corn or soybeans. If you grow corn, you earn a Total Revenue of $99,000 and your Explicit Costs are $89,000. If you grow soybeans, you earn a Total Revenue of $110,000 and your Explicit Costs are $98,000. What is the Economic Profit (or Loss) of growing corn?

Group of answer choices

a. $12,000

b. $10,000

c. $2,000

d. −$2,000

Answer 1

1)

Implicit is the indirect cost you incurred in order to choose an alternative you have chosen. Here in order to grow corn you have sacrifice a profit that you can earn while growing soybeans. Thus implicit cost is a profit you sacrifice in order to grow crops

Profit(Accounting) you would earn if you produce soybeans = Total Revenue - Explicit cost = 110,000 - 98,000 = 12,000.{Note accounting profit = Total Revenue - Explicit cost}.

Thus, Implicit cost = 12,000

Hence, the correct answer is (c) $12,000.

2)

Economic profit = Total Revenue - Explicit cost - Implicit cost.

As calculated above implicit cost = 12000.

Thus, Economic profit of growing corn = 99,000 - 89,000 - 12,000 = -2000

Hence, the correct answer is (d) -$2,000