Asked by Chloe Francis on May 16, 2024
Verified
Farmer Jones is producing wheat and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $5.00 per bushel. Her minimum average variable costs are $3.50 per bushel. In order to maximize profits or minimize losses in the short run, farmer Jones should
A) increase selling price.
B) produce zero output and shut down.
C) continue producing, but reduce output.
D) increase output.
Marginal Costs
The upsurge in full cost that comes from the generation of one additional unit of a good or service.
Short Run
A period in economic analysis where at least one input is fixed, focusing on immediate effects and adjustments in production or operations.
- Recognize the circumstances that lead to maximum profit or minimum loss for a company in the short-term.
- Examine the importance of marginal cost and marginal revenue in determining optimal production rates.
Verified Answer
LH
Louie HelsenMay 18, 2024
Final Answer :
D
Explanation :
Since the market price ($6.00) is above both the average total costs ($5.00) and marginal costs ($5.00), Farmer Jones can increase her profits by producing more, as each additional bushel produced and sold generates more revenue than its cost.
Learning Objectives
- Recognize the circumstances that lead to maximum profit or minimum loss for a company in the short-term.
- Examine the importance of marginal cost and marginal revenue in determining optimal production rates.