John Smith is a large-scale cotton farmer. The land and machinery he owns have a current market value of $4 million. Smith owes his local bank $3 million. Last year Smith sold $5 million worth of cotton. His variable operating costs were $4.5 million, and accounting depreciation was $40,000, although the actual decline in value of Smith machinery was $60,000 last year. Mr. Smith paid himself a salary of $50,000, which is not considered part of his variable operating costs. Interest on his bank loan was ewas $400,000. If Smith worked for another Farmer or a local manufacturer, his annual income would be about $30,000. Smith can invest any funds that would be derived if the farm were sold to earn 10 percent annually

a. Compute Mr. Smith's accounting profits

b. Compute Mr. Smith's economic profits