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In: Economics

The farmer produces 899 bushels of wheat at a total cost of $6 per bushel. He...

The farmer produces 899 bushels of wheat at a total cost of $6 per bushel. He sells all of the wheat to Firm F for $11 per bushel. Firm F produces 500 pounds of flour from the wheat at a total cost of $23 per pound (including the amount paid to the farmer for the wheat). Firm F sells 475 pounds of flour to consumers for $31 per pound. There are no other firms in this simple economy. What is the value of investment spending?

Solutions

Expert Solution

The farmer produces 899 bushels of wheat at a cost of $6 per bushel.

The total cost of 899 bushels = $6 x 899 = $5394

He sells all of the wheat to Firm F for $11 per bushel.

The total revenue the farmer earns = $ 11 x 899 = $ 9889

The total profit the farmer earns = Total revenue - Total cost

Total profit the farmer earns = $9889 - $5394 = $4495

So, the farmer earns the total profit of $4495

The firm F produces 500 pounds of flour from the wheat at a total cost of $23 per pound.

The total cost of production of 500 pounds of wheat = $23 x 500 = $11500

The firm F sells 475 pounds of flour to consumers for $31 per pound.

The total revenue the firm F earns from selling wheat = $31 x 475 = $14725

The total profit the farm F earns = Total revenue - Total cost

Or, the total profit the farm F earns = $14725 - $11500 = $3225

The total profit the farmer and farm F earn = $4495 + $ 3225 = $7720

Rahul Sunny answered 2 years ago
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