You are economic consultant for Jack, who farms raw cotton in a perfectly compet
ID: 1201653 • Letter: Y
Question
You are economic consultant for Jack, who farms raw cotton in a perfectly competitive market. One day he gives you the following data at his present level of production: Output = 2000 pounds, market price = $5.00, total cost =$8000, fixed cost=$2000, marginal cost=$5. The minimum of AVC occurs at {1000 pounds at $2} and the minimum of ATC at {1500 pounds at $3.5}. Please help Jack with the following questions based on the above figures: a. Draw a graph for the raw cotton market and a graph for Jack’s farm current situation that includes MC, ATC, and AVC, labeling all relevant points on axes with numerical values. Is Jack maximizing the profit (minimizing the loss)? Why or why not? Label the total profit/loss area
Explanation / Answer
Since it is producing where MR = P = MC, it will be maximizing profit.
Total profit will be : 2000(5) - 8000 = $2000
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