Tony is a wheat farmer but also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Farmer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business. Farmer Tony charges $25 an hour for his guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat. Tony's economic profit equals

The economic profits is - $80.

Explanation:

Economic profits is equal to the value of total revenue minus total cost. Here, the total cost includes both explicit as well as implicit costs. Explicit cost here is the cost of seeds. The implicit cost is the opportunity cost of sacrificing 10 hours of guitar lessons.

The explicit cost or cost of seeds is $130.

The implicit cost is $250.

Total costs will be

=Implicit costs+explicit costs

= $250 + $130

= $380

Total revenue earned is $300.

Economic profits will be

=Total revenue - Total costs

=$300-$380

= - $80