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Tony is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Farmer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business. Farmer Tony charges $25 an hour for his guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat. Refer to Scenario 13-3. What is the total opportunity cost of the day that Farmer Tony incurred for his spring day in the field planting wheat?
A. What is the total opportunity cost of the day that Farmer Tony incurred for his spring day in
the field planting wheat?
B. Tony's accountant would most likely figure the total cost of his wheat planting to equal
C. Tony's accounting profit equals
D. Tony's economic profit equals

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Answer:

A) Tony's opportunity cost for spending 10 hours planting seeds is $250, since that is the amount he could earn be teaching guitar lessons.

B) Tony's accountant will calculate the cost of planting seeds at $130, since it includes only the cost of the seeds

C) Tony's accounting profit is $170 (= $300 - $130). Revenue from selling wheat - accounting cost of planting wheat seeds.

D) Tony's economic loss is $80 [= $300 - ($130 + $250)]. Economic profit or loss is calculated with the formula: economic profit = total revenue - (accounting costs + opportunity costs)

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