A Wheat Farmer Sells Wheat in a Perfectly Competitive Market

question 182

Multiple Choice

A wheat farmer sells wheat in a perfectly competitive market and hires labor in a perfectly competitive market. The market price of wheat is $2 a bushel, the wage rate is $10, the farmer employs five workers and the marginal product of the fifth worker is 3 bushels. What would you advise this farmer to do?

• A) Do nothing because the wage rate and the marginal product of the last worker hired are equal.
• B) Reduce employment because the wage paid is more than the marginal revenue product.
• C) Increase employment because the wage paid is less than the marginal revenue product.
• D) Reduce the product price so that the wage and marginal revenue product will be equal.

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Definitions:

Using Analogies

The process of explaining a concept or idea by comparing it with something else that is more familiar or easier to understand.

General Intelligence

The theory that one common factor underlies intelligence.

Crystallized Intelligence

Intelligence that reflects both knowledge gained through experience and the ability to use that knowledge.

Fluid Intelligence

Intelligence that reflects the ability to process information, particularly in novel or complex circumstances.