The Wheeler family always maximizes prots and produced 100,000 bushels of wheat
ID: 1202971 • Letter: T
Question
The Wheeler family always maximizes prots and produced 100,000 bushels of wheat last season at an average total cost of $6 a bushel but made zero economic prots. The price they got for their wheat was?
This season there is no change in the Wheeler farm's costs curves, but the price they can obtain for wheat is $12 a bushel. This season they should?
7. Assuming they produce wheat this season the marginal cost of the last bushel they produce will be?
8. This season their prots will be?
a. zero
b. exactly $120,000
c. negative
d. as Yoda says: impossible to tell precisely but more than $100,000
Explanation / Answer
When the family is earning zero economic profit, it must be that it is earning just equal to its average total cost. Hence equilibrium price is $6 per unit.
Since this season the price has risen to $12 so they should produce the same.
The marginal cost of the last bushel they produce will be equal to thr price of wheat per bushel. Hence, the marginal cost will be equal to ATC which is $6
The corrcet answer is D. as Yoda says: impossible to tell precisely but more than $100,000
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