Farmer? Parker\'s profit-maximizing level of production is 6 bushels of wheat. A
ID: 2440420 • Letter: F
Question
Farmer? Parker's profit-maximizing level of production is 6 bushels of wheat.
At this level of production he produces following the rule Marginal Revenue? = Marginal Cost and earns the maximum possible profit of
?$5.00.
Farmer? Parker's fixed costs are
?$ .
?(Enter your response rounded to two decimal? places.)
Suppose that fixed costs increase by $2.00
Farmer? Parker's new? profit-maximizing level of production after the increase in fixed costs is
bushels of wheat
The amount of profit that Farmer Parker will earn after the increase in fixed costs is
?$.
?(Enter your response rounded to two decimal? places. (3 pts)
Explanation / Answer
(a)
Fixed cost is the total cost when Q = 0, that is, when variable costs are zero.
So, FC = $1 (TC when Q = 0).
(b)
After FC increases by $2, TC will increase by $2 at every level, which will not impact MC in any manner. Following the MR = MC rule will give the same results as before, since MC will not change.
Therefore, new profit-maximizing output = 6 units (as before)
(c) However, profits will change since TC is higher:
When Q = 6, TR = 24, but new TC = 16 + 2 = 18
New profit = 24 - 18 = $6
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