Refer to Figure 8.4.2 above. The figure describes the cost and revenue structure

Q: Refer to Figure 8.4.2 above. The figure describes the cost and revenue structure

1) If the farm produces 14 sacks of coffee when market price is $380: Option 2 is correct (the farmer has lost an opportunity for additional profit, Profit is maximized where P = MC) 2) Profit is maximized where P = MC Q = 22 sacks Option 1 is correct 3) Total cost = ATC x Q = 283 x 22 = $6226 (Option 3 is correct)

ID: 1110498 • Letter: R

Question

Refer to Figure 8.4.2 above. The figure describes the cost and revenue structure of a perfectly competitive coffee farm, on a per-unit basis. What is the profit maximizing number of sacks when the price of coffee in the market is $380 dollars?

14 or 22 sacks

Refer to Figure 8.4.2 above. When the farmer's profit is maximized, total cost equals:

the farmer has maximized his profit. Dollars MC per sack (thousands) $380 Demand 304 283 ATC AVC 264 258 225 214 0 2 4 6 8 10 12 14 16 18 20 22 24 26 Quantity of coffee (sacks of 60 kilos) Figure 8.4.2

Explanation / Answer

If the farm produces 14 sacks of coffee when market price is $380:

Option 2 is correct (the farmer has lost an opportunity for additional profit, Profit is maximized where P = MC)

Profit is maximized where P = MC

Q = 22 sacks

Option 1 is correct

Total cost = ATC x Q = 283 x 22 = $6226 (Option 3 is correct)

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Refer to Figure 8.4.2 above. The figure describes the cost and revenue structure

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