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10 November, 22:49

Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are

A. $75, and her economic profits are $125.

B. $100, and her economic profits are $75.

C. $100, and her economic profits are $25.

D. $25, and her economic profits are $100.

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  1. 10 November, 23:11
    0
    The accounting profits are $100, and the economic profits are $25

    The option C. is correct

    Explanation:

    Accounting profit: The accounting profit is computed by subtracting the sales amount with the expenses.

    In mathematically,

    Accounting profit = Sales revenue - expenses

    = $150 - $50

    = $100

    In this, the expense is the seeds cost

    And, the economic profit is calculated by subtracting the accounting profit with the implicit cost

    In mathematically,

    Economic profit = Accounting profit - implicit cost

    = $100 - $75

    = $25

    The implicit cost is computed by

    = Per hour piano charges * number of hours

    = $15 * 5

    = $75

    Hence, the accounting profits are $100, and the economic profits are $25
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