(Explicit and implicit Costs) Amos McCoy is currently raising corn on his 100-acre farm and earning an accounting profit of $100 per acre. However, if he raised soybeans, he could earn accounting profit of $200 per acre. Is he currently earning an economic profit? Why or why not?
Whether Amos McCoy is currently earning an economic profit or not.
Concept Introduction:
Amos McCoy is not currently making an economic profit. Difference between the revenue received from the sale of an output and the opportunity cost of the inputs is called economic profit. Total earnings calculated according to generally accepted accounting principles (GAAP) is called accounting profit.
Both alternatives are considered (i.e explicit and implicit cost) while estimating economic cost. Accounting cost does not take into consideration implicit cost. Opportunity cost associated with raising soyabean is being ignored while calculating accounting profit. While raising corn at a profit of $100 per acer, profit of $200 per acer is being ignored on soyabean. Economic loss of $100 is being incurred ($200-$100=$100). Amos McCoy is not currently making an economic profit. In the end, it should be concluded that he should grow soyabeans and get out of the corn business.
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Get SolutionsSTATISTICS F/BUSINESS+ECONOMICS-TEXT
Principles of Macroeconomics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
Probability and Statistics for Engineering and the Sciences
Principles of Economics (MindTap Course List)
Essentials of Business Communication (MindTap Course List)
Foundations of Business (MindTap Course List)
Cornerstones of Financial Accounting
Corporate Financial Accounting
Accounting Information Systems
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Financial & Managerial Accounting
Fundamentals of Financial Management (MindTap Course List)
Financial And Managerial Accounting
Essentials of Economics (MindTap Course List)
Financial Accounting
College Accounting, Chapters 1-27
Management, Loose-Leaf Version
Managerial Accounting: The Cornerstone of Business Decision-Making
MKTG 12:STUDENT ED.-TEXT
College Accounting (Book Only): A Career Approach
Contemporary Marketing
Accounting Information Systems
Intermediate Accounting: Reporting And Analysis
Financial Accounting
Financial & Managerial Accounting
Statistics for Business & Economics, Revised (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Exploring Economics
Pkg Acc Infor Systems MS VISIO CD
Fundamentals of Financial Management (MindTap Course List)
College Accounting (Book Only): A Career Approach
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Accounting (Text Only)
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Economics For Today
Macroeconomics
Microeconomics
Economics (MindTap Course List)
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Purchasing and Supply Chain Management
Practical Management Science
Corporate Financial Accounting
Survey of Accounting (Accounting I)
Cornerstones of Cost Management (Cornerstones Series)
Microeconomics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
Principles of Microeconomics
Micro Economics For Today
Macroeconomics: Private and Public Choice (MindTap Course List)
MACROECONOMICS FOR TODAY
Managerial Accounting
Understanding Management (MindTap Course List)