Exercise $8\mathrm{.}2$

Howard Bowen is a large$-$scale cotton farmer. The land and machinery he owns has a current market value of $$10$ million. Bowen owes his local bank $$7$ million. Last year Bowen sold $$9$ million worth of cotton. His variable operating costs were $$7$ million; accounting depreciation was $$40,000,$ although the actual decline in value of Bowen's machinery was $$60,000$ last year. Bowen paid himself a salary of $$50,000,$ which is not considered part of his variable operating costs. Interest on his bank loan was $$400,000.$ If Bowen worked for another farmer or a local manufacturer, his annual income would be about $$30,000.$ Bowen can invest any funds that would be derived if the farm were sold to earn $10\%$ annually. $($Ignore taxes.$)$

What is Bowen's accounting profit?

$$1,550,000$

$$1,560,000$

$$1,210,000\mathrm{.}00$

$$1,220,000\mathrm{.}00$

What is Bowen's economic profit?

$$1,220,000\mathrm{.}00$

$$1,560,000$

$$1,210,000\mathrm{.}00$

$$1,550,000$