Question

1) The price the individual farmer will charge for a bushel of wheat when it maximizes its profit is $_________.(numeric)

2) The marginal revenue (MR) the individual farmer will receive for a bushel of wheat when it maximizes its profit is $_________.(numeric)

3) This individual farmer will produce ________bushels (numeric) to maximize its profits.

4) This individual farmer will earn $ ________profit (Numeric) when it maximizes its profit.

Quantity MR TR Profit 0 10 20 30 40 50 60 70 80 Total Marginal Average total cost cost cost $10 $90 $80 $9 $150 $60 $8 $190 $40 $6 $225 $35 $6 $285 $60 $6 $365 $80 $6 $465 $100 $7 $585 $120 $7 $55 $55 $55 $55 $55 $55 $55 $55 $0 $55 $110 $165 $220 $275 $330 $385 $440 ($10) ($35) (S40) ($25) ($5) ($10) ($35) ($80) ($145)

Answer 1

To maximize profit, the farmer will follow the profit maximization condition of MR=MC or one can simply observe the maximum profit arising from the given table. Now observe that in the all the rows, TC>TR. This means the farmer is not earning positive profits at any point of production. Thus the best the farmer can do is to minimize his losses - which is same as maximizing his profits. This point will be a point at which MR>MC (since here dont have a MR=MC point). There are two levels of production where this occurs - Q=30 and Q=40. Here at Q=40, it the minimum loss of 5. So this is the point of production to maximize profit (min loss). Also recall that P=MR.

1. So the price charged will be $55.

2. The MR at the level is $45.

3. As discuss in the first paragraph, the individual farmer will produce 40 bushels to maximize profits.

4. At the level of Q=40, the profit earned will be -5 (Profit = TR-TC = $220-$225)