High School

Refer to Scenario 13-1. What is Blake's economic profit?

Blake's total revenue: $870
Costs incurred:
- Renting a tractor: $50
- Fertilizer: $150
- Wages: $100
Opportunity costs:
- Interest on $5000 at 10%: $500
- Foregone earnings from other job: $130

Calculate economic profit by subtracting total costs and opportunity costs from total revenue.

Answer :

Final answer:

Blake's economic profit is $440.

Explanation:

To calculate Blake's economic profit, we need to subtract both his explicit and implicit costs from his total revenue. Let's break it down:

  1. Explicit costs: Blake incurs the following explicit costs: $50 for renting a tractor, $150 for fertilizer, and $100 for wages paid to workers. These costs amount to a total of $300.
  2. Implicit costs: Blake also incurs implicit costs. The first implicit cost is the opportunity cost of using $5000 that could have been invested in his savings account at 10 percent interest. This amounts to an opportunity cost of $500. The second implicit cost is the opportunity cost of giving up $130 he could have earned at his other job.

To calculate the economic profit, we subtract the total costs (explicit and implicit) from the total revenue. Blake's total revenue is $870, and his total costs (explicit and implicit) amount to $430 ($300 explicit costs + $500 implicit costs). Therefore, Blake's economic profit is $440 ($870 - $430).

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Final answer:

Blake's economic profit is -$4560.

Explanation:

To calculate Blake's economic profit, we need to consider both explicit and implicit costs. Explicit costs are the actual out-of-pocket expenses incurred by a business, such as wages, rent, and materials. In this case, Blake's explicit costs include the $50 for renting a tractor, $150 for fertilizer, and $100 for wages paid to workers.

Implicit costs, on the other hand, are the opportunity costs of using resources in a particular way. In this case, Blake's implicit costs include the $5000 he could have invested in his savings account at 10 percent interest and the $130 he could have earned at his other job.

To calculate Blake's economic profit, we subtract both explicit and implicit costs from total revenue. Blake's total revenue is $870. His explicit costs amount to $50 + $150 + $100 = $300. His implicit costs amount to $5000 + $130 = $5130.

Economic profit = Total revenue - Explicit costs - Implicit costs

Economic profit = $870 - $300 - $5130

Economic profit = -$4560

Therefore, Blake's economic profit is -$4560. This means that he incurred a loss of $4560 in his wheat planting venture.

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