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.

Understand the concept of marginal and average tax rates and their calculations from income and tax data.

Compare the effects of different tax structures (progressive, regressive, proportional) on income distribution.

Comprehend the impact of tax policies on economic behavior, including tax incidence and tax shifting.

Analyze the effects of specific taxes, such as luxury taxes and payroll taxes, on market behavior and economic equilibrium.

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Definitions:

Core Product

The fundamental benefit or solution provided to the customer, beyond the physical good or tangible aspect of a product purchase.

Interrelated Dimensions

Aspects or facets of a concept or system that are connected and affect each other.

Physical Evidence

Physical evidence refers to the environment in which a service is delivered and where the firm and customer interact, and any tangible commodities that facilitate the performance or communication of the service.

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