Larry owns a lemon farm. On one day during planting season, Larry spends 10 hours planting $200 worth of seeds. Larry expects these seeds to yield $1,000 worth of lemons. Additionally, Larry is a former professional golfer. To supplement his income, he also provides golf lessons, for which he charges $30 per hour. He cannot simultaneously plant seeds and provide golf lessons. From an economic perspective, the cost of Larry's lemon farm is

Question

BlackTom AI · Accepted Answer

Opportunity cost equals the value of the best alternative forgone, so economic cost = explicit monetary costs + implicit (opportunity) costs.

Relevant concepts:
- Explicit cost: direct, out-of-pocket payment (here, $200 for seeds).
- Implicit cost (opportunity cost): income forgone by choosing one activity over the next best alternative (here, foregone golf lesson earnings).
- Economic cost is the sum of explicit and implicit costs. Revenue or expected output value (the $1,000 expected lemons) is a benefit, not a cost.

Step-by-step reasoning and calculations:
1. Explicit cost: Larry spends $200 on seeds. That is a direct monetary cost.
2. Determine the implicit cost of his time: Larry spends 10 hours planting and cannot give golf lessons during that time. His alternative wage from lessons is $30 per hour.
3. Calculate forgone lesson income: 10 hours × $30/hour = $300.
4. Sum explicit and implicit costs to get economic cost: $200 (seeds) + $300 (forgone lessons) = $500.

Intermediate steps shown:
- Forgone income = 10 × 30 = 300.
- Economic cost = 200 + 300 = 500.

Why this answer is correct:
Economic cost accounts for both the cash outlay and the value of the best alternative use of resources. By planting, Larry incurs the $200 seed expense and gives up $300 he could have earned teaching golf; together these are the true economic costs of his choice.

Why the other options are incorrect:
- $200: This is only the explicit monetary cost (seeds) and ignores the opportunity cost of Larry’s time.
- $300: This is only the implicit cost (forgone lesson income) and ignores the seed expense.
- $1,000: This is the expected revenue or benefit from the seeds (value of the lemons), not a cost. It shouldn’t be counted as a cost.

Conclusion: The economic cost is $500, which matches the provided correct answer.

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