Discussion:
Xander Harris is considering whether to buy a corn and soybean farm in Iowa. The farm will cost $800,000, and Xander will be able to pay this from profits his recently deceased mother made on the stock market and willed to him. He estimates that if he does not run the farm, and keeps his current job as an economic forecaster, he will be able to earn $40,000 a year. The prevailing interest rate is 9 percent. Xander's only motive is to maximize his income. Should he buy the farm and become a farmer if his annual profit from the farm is likely to be:
i.) $160,000?
ii) $100,000?
iii) $50,000?
Make sure to look at this as an economist rather than accountant. What profit figures does he come up with?