MC ATC AVC 10 20 30 40 50 Output thousands of bushels per year) e above diagram
ID: 1109817 • Letter: M
Question
MC ATC AVC 10 20 30 40 50 Output thousands of bushels per year) e above diagram shows the cost curves for a perfectly competitive wheat farmer a. At what price(s) does the wheat farmer ean an economic profit? b. At what price(s) does the wheat farmer earn a normal profit? c. At what price(s) does the wheat farmer incur an economic loss? d. How many bushels of wheat does the farmer produce if the price is $3 per bushel? How many bushels of wheat does the farmer produce if the price is $0.50 per bushel? e. The market demand curve for wheat is given by: (in thousands of bushels) = 1 2000-2000P. f If all firms are identical and the current market price is $3/bushel, how many firms are in the market? g In the long run how many firms will enter the market?Explanation / Answer
Question 25
(a)
The perfectly competitive wheat farmer will earn an economic profit at any price that is greater than minimum ATC.
The minimum ATC is $2 per bushel.
So, at all prices above $2 per bushel, the wheat farmer earns an economic profit.
(b)
The perfectly competitive wheat farmer will earn normal profit at a price that is equal to minimum ATC.
The minimum ATC is $2 per bushel.
So, at price of $2 per bushel, the wheat farmer earns a normal profit.
(c)
The perfectly competitive wheat farmer will incur an economic loss at any price that is less than the minimum ATC.
The minimum ATC is $2 per bushel.
So, at all prices below $2 per bushel, the wheat farmer will incur an economic loss.
(d)
A perfectly competitive firm produces that level of output corresponding to which price equals marginal cost.
If the price is $3 per bushel then in such case price equals marginal cost corresponding to output of 30 thousand bushels per year.
Thus, farmer will produce 30 thousand bushels per year if the price is $3 per bushel.
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