Answer to Question #123381 in Microeconomics for Usama

Question

A farmer plans to harvest Maize on his own specific land. Discuss all the factors which he needs to harvest the whole season of crop. Also mentioned their reward, difference between economic profit and accounting profit, implicit and explicit cost and average cost also?

Answer 1

Basically, the factors of production are land, labour, capital and entrepreneurship. The maize farmer here is the entrepreneur thus his reward will either be a profit or a loss depending on the forces of demand and suppply. If there's a high demand of the maize then the farmer will make a profit since there will be allot of buyers willing to buy the maize at the set price. If there is a low demand of maize, the farmer will make a loss since the buyers are not willing to buy the maize at the set price thus he has to lower the price of the maize. If there is a high demand of maize the farmer has to produce more maize he also has to employ labourers to help him cultivate and harvest the crop. The labourers can be rewarded can be rewarded for there work either by being paid cash or by being given some maize. If the farmer pays the labourers using maize then he will have made an economic profit and if he pays them using money then he will make an accounting profit. By paying the labourers in either of the two ways the farmer will incur an explicit cost and by putting his land into farming he will incur an implicit cost.