Unskilled workers in a poor cotton-growing region must choose between working in a factory for $6,000 a year and being a tenant cotton farmer. One farmer can work a 120-acre farm, which rents for $10,000 a year. Such farms yield $20,000 worth of cotton each year. The total nonlabor cost of producing and marketing the cotton is $4,000 a year. A local politician whose motto is “working people come first” has promised that if he is elected, his administration will fund a fertilizer, irrigation, and marketing scheme that will triple cotton yields on tenant farms at no charge to tenant farmers.

a. If the market price of cotton would be unaffected by this policy and no new jobs would be created in the cotton-growing industry, how would the project affect the profits of tenant farmers in the short run? In the long run?

Short-run economic profit: $ per lease.
Long-run economic profit: $ per lease.

b. Who would reap the benefit of the scheme in the long run? How much would they gain each year?

would gain $ per plot each year due to _

Landowners would reap the long-term benefits of the scheme. Their income would rise by $40,000 per year per 120-acre plot because rent would rise from $10,000 to $50,000.

marvineetesh3 marvineetesh3 · Answer 2 · 2022-03-08T13:58:45+01:00

The correct values are:

(a). Short-run economic profit would be $40,000 per lease.

Long-run economic profit would be $0 per lease.

(b). Landowners gain each year is $40,000 per plot due to advanced rent for land.

What is economic profit?

Economic profit is defined as the difference between the revenue obtained from the sale of any product and the costs of all input signal, considering opportunity costs.

The formula of Economic profit is:

[tex]\text{Economic Profit} = \text{Total Revenue} -\text{ Explicit Costs}- \text{Implicit Costs}[/tex]

Computations:

(a).

The short-run economic profit for a cotton farmer is:

According to the given situation,

Total Revenue = $60,000,

Explicit costs = $14,000,

Implicit costs =$6,000.

Now, substitute the given values in the above formula:

[tex]\text{Economic Profit} = \text{Total Revenue} -\text{ Explicit Costs}- \text{Implicit Costs}\\\\\text{Economic Profit} = \$60,000 - \$14,000 - \$6,000\\\\\text{Economic Profit} = \$40,000 \text{Per lease.}[/tex]

(b). Landowners would gather the long-term performances of the strategy. Their income would rise up by $40,000 yearly on per 120-acre strategy because rent would arise from $10,000—$50,000.

Therefore, the gain of landowner each year is $40,000.

Learn more about the economic profit, refer to: