Farmer Jones Is Producing Wheat and Must Accept the Market

question 284

Multiple Choice

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 $8.00 per bushel. Her minimum average variable costs are $5.00 per bushel. In order to maximize profits or minimize losses in the short run, farmer Jones should

• A)increase output.
• B)increase selling price.
• C)produce zero output and shut down.
• D)continue producing, but reduce output.

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Definitions:

Marginal Revenue

The additional income earned by selling one more unit of a product or service.

Average Total Cost

The total cost divided by the quantity produced, indicating the average cost per unit of output.

Economic Profit

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, measured in terms of opportunity costs.

Long Run

A period in economics where all factors of production and costs are variable, allowing full adjustment to changes.