Suppose that in a competitive wheat market, the forces of supply and demand dete
ID: 1111017 • Letter: S
Question
Suppose that in a competitive wheat market, the forces of supply and demand determine a price of $6 for a bushel of wheat. There are 50 farmers in this market, and each farmer produces 100 bushels of wheat at the market price in short-run equilibrium. Each farmer has an average total cost (ATC) of $4.25, and an average variable cost (AVC) of $3.25 at the output level of 100. Assume that the short-run equilibrium looks like this for a typical farmer where Q* = 100. What is the total revenue, total cost, and profit for each farmer?
Explanation / Answer
total revenue = P*Q = 100*6 = 600
TOTAL COST = ATC*Q = 100*4.25 = 425
PROFITS = TOTAL REVENUE - TOTAL COST = 600-425 = 175
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