Question

A recent explosion in the demand for (and price of) organically produced foods has caused many farmers to convert from traditional farming methods to higher-cost organic farming methods. Explain what has happened to the opportunity cost of traditional farming and why. Based on your explanation, does it make sense to see so many farmers moving to organic farming? Explain.

Answer 1

The opportunity cost of producing a good is the next best alternative foregone that could have been produced with the same resources. The opportunity cost decreases the accounting profit and the profit of the producers including opportunity cost is called the economic profit.

In this case, as demand for organic farming rises, it becomes profitable for the farmer to produce by organic farming method, although it has a high cost of production. If the farmer chooses organic farming over traditional farming this implies that the economic profit of organic farming is higher than traditional firming. Gien the fact that accounting profit for organic farming is smaller than traditional farming, the boost in demand for organic food has increased the opportunity cost of traditional firming. The opportunity cost has risen so much that the economic profit for organic profit is higher than traditional farming.

Based on these facts it is make sense to choose organic farming as for economic efficiency the producer must choose the alternative with lower opportunity cost. In this case the option with lower opportunity cost is organic farming.