Mr. jernigan owns a piece of land on which he grows corn. corn production annually requires $6 comma 0006,000 in seed, $3 comma 0003,000 in fertilizer, and $6 comma 0006,000 in pesticides. mr. jernigan uses his own labor to grow the corn and therefore hires no workers. if mr. jernigan did not use his time to grow corn, he would instead be able to sell insurance, earning $25 comma 00025,000 per year. suppose another farmer has just offered to pay mr. jernigan rent of $20 comma 00020,000 per year for use of the land. if mr. jernigan refuses to rent the land to another farmer, then what will be his accounting costs from farming corn himself on his land? what will be his economic costs?

Question

Business

Kennedi Grimes

7 December, 06:40

Mr. jernigan owns a piece of land on which he grows corn. corn production annually requires $6 comma 0006,000 in seed, $3 comma 0003,000 in fertilizer, and $6 comma 0006,000 in pesticides. mr. jernigan uses his own labor to grow the corn and therefore hires no workers. if mr. jernigan did not use his time to grow corn, he would instead be able to sell insurance, earning $25 comma 00025,000 per year. suppose another farmer has just offered to pay mr. jernigan rent of $20 comma 00020,000 per year for use of the land. if mr. jernigan refuses to rent the land to another farmer, then what will be his accounting costs from farming corn himself on his land? what will be his economic costs?

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Answers (1)

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Avery Grimes · Answer 1

accounting costs = $15,000

economic costs = $60,000

Explanation:

Mr. Jernigan's accounting costs:

seeds = $6,000

fertilizer = $3,000

pesticides = $6,000

total = $15,000

If Mr. Jernigan decided not to farm his land, he could earn:

lost wages = $25,000

rent = $20,000

total = $45,000

Economic costs include both accounting and opportunity costs. Opportunity costs are extra costs incurred or benefits lost from choosing an activity or investment over another alternative.

In this case, Mr. Jernigan's accounting costs = $15,000, and his economic costs = accounting costs + opportunity costs = $15,000 + $45,000 = $60,000