Question

1. Assume soybeans are produced in a perfectly competitive market. A soybean farmer is currently maximizing his profits. If the market price of soybeans falls, after the farmer adjusts to the new price, he will be producing ________ bushels of soybeans, and his economic profit will be ________.

   A) fewer; the same
   B) fewer; lower
   C) more; the same
   D) the same number of; the same

Answer 1

Answer - B) fewer; lower

A perfect competition market is that where there will be large number of sellers and buyers and the sellers sells identical goods. In this market the price is determined by industry and the firms are the price takers.

A soybean farmer is currently maximizing his profits. It means the firms MR=MC. For a firm, in perfect competition MR=AR=Price and the AR is more than AC and the firm is getting economic profit.

If the market price of soybeans falls, then the MC curve will intersect the MR at a lower point  then the previous equilibrium point. It will leads to producing fewer or less output than before.

When the price falls, the gap between AR AND ATC will be narrowed and thus the economic profit will be lower.

Answer - B) fewer; lower