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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Farmer McDonald gives banjo lessons for $20 an hour. One day. he spends 10 hours planting $100 worth of seeds on his farm. What opportunity cost has he incurred? What cost would his accountant measure? If these seeds yield $200 worth of crops, does McDonald earn an accounting profit? Does he earn an economic profit?

To determine
Farmer McDonald opportunity cost, accounting profit and economic profit.

Explanation

When a Farmer Mc Donald gives lesson for $20 an hour and he spends 10 hours planting $100 worth of seeds, then the opportunity cost can be calculated as follows:

Opportunity cost=Hours of lesson at cost+Earning=(10×20)+100=300

Thus, the opportunity cost is $300

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