Author Question: The above diagram shows the cost curves for a perfectly competitive wheat farmer. At what ... (Read 104 times)

bobbie · **on:** Jun 29, 2018

The above diagram shows the cost curves for a perfectly competitive wheat farmer.

At what price(s) does the wheat farmer make an economic profit? Make zero economic profit? Incur an economic loss? How many bushels of wheat does the farmer produce if the price is 3 per bushel? If the price is 0.50 per bushel?

Question 2

The present value of 100 to be received in the year 2014 is

A) less than the present value of 100 to be received in 2015.
B) greater than the present value of 100 to be received in 2015.
C) the same as the present value of 100 to be received in 2015.
D) greater than the present value of 100 to be received in 2015 if the interest rate in 2015 exceeds the interest rate in 2014; otherwise, it is less.

Jbrasil · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

At any price that exceeds the minimum of the average total cost the farmer earns an economic profit. So the farmer makes an economic profit if the price is greater than 2 per bushel. The farmer makes zero economic profit if the price equals the minimum total cost. So the farmer makes a normal profit if the price is 2 per bushel. Finally, the farmer incurs an economic loss if the price is less than the minimum average total cost. So the farmer incurs an economic loss if the price is less than 2 per bushel. If the price is 3 per bushel, the farmer produces 30,000 bushels of wheat per year. If the price is 0.50 per bushel, the farmer has shut down because the price is less than the minimum average variable cost and so the farmer produces 0 bushels per year.

Answer to Question 2

B