Biff owns and operates a golf driving range on land that he

Biff owns and operates a golf driving range on land that he also owns. Last year his accountant calculated that his driving range makes $50,000 profits per year. Last year a property management company offered to lease Biff’s land from him for $80,000 per year forever. Calculate the economic profits of Biff’s driving range last year. If the property management company offers the same land lease deal to Biff this year, should he take the deal? Explain why or why not, and use your calculationof Biff’s economic profits in your explanation.

Solution

Biff should take the deal. Because it will give $30,000 (80000 - 50000) more as economis profit per year.