Suppose That a Wheat Farm Has Total Fixed Costs (TFC)

question 44

Essay

Suppose that a wheat farm has total fixed costs (TFC) equal to $10, and the price of wheat (Py) is equal to $14/bu. Use a chart to find the profit-maximizing level of wheat for the farm to produce.
$\begin{array}{ccccccccccc}\mathrm{Y} & \text { TVC } & \text { TFC } & \text { TC } & \text { ATC } & \text { AVC } & \text { MC } & \text { TR } & \text { AR } & \text { MR } & \Pi \\0 & 0 & & & & & & & & & \\1 & 10 & & & & & & & & \\2 & 16 & & & & & & & & \\3 & 18 & & & & & & & & \\4 & 22 & & & & & & & & \\5 & 36 & & & & & & & & \\6 & 58 & & & & & & & & \\7 & 84 & & & & & & & &\end{array}$ A. Give an example of a fixed cost for the wheat farm; explain why it is fixed. B. Give an example of a variable cost for the wheat farm; explain why it is variable. C. Define opportunity costs and describe the farmer's opportunity costs. D. Do costs in the table above include opportunity costs? Explain. E. Explain why the total cost curve is shaped the way that it is. F. Briefly state the relationship between average and marginal costs. G. What is the profit-maximizing level of output? What is the maximum level of profits that the farm can earn? H. What is the breakeven price? What is the breakeven quantity? I. What is the shut down price? What is the shut down quantity? J. What happen to fixed costs in the long run? What are the break even and shut down points in the long run? K. Graph TC, TVC, TFC, ATC, AVC, and MC. Include labels and units.

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