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Question: consider the market for wheat suppose many farmers with identical...

Question details

Consider the market for wheat. Suppose many farmers with identical farms supply the wheat. The market demand and supply of wheat result in an equilibrium price of $2 per bushel of wheat. This graph represents one farmer's average variable cost (AVC) and marginal cost (MC) functions for producing wheat. It also shows the demand curve the farmer faces (D). Because it is horizontal, it is equal to the marginal revenue curve (MR).

Recall that variable costs are the costs that change with the quantity of wheat that the farmer grows, costs such as fuel and fertilizer. If the farmer decides to grow no wheat this year, she can avoid these variable costs. For this farmer, variable costs are the only costs that she can avoid by choosing not to produce wheat this year. In the short run, she cannot avoid such costs as the two-year lease.

Question #8:

If this farmer wants to maximize her profit (or minimize her loss), does make sense for her to produce a positive amount even though it means incurring variable costs?

Select one:

a. Not enough information to determine the answer

b. Yes

c. No

Question #9:

Does it make sense for this farmer to stay in business in the short-run?

Select one:

a. Not enough information to determine the answer.

b. Yes

c. No

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