Question

Brandon and valerie just purchased a piece of land and a tractor. they plan to start growing and selling organic peas. THey have heard of the market for organic peas is perfectly competative. what does that mean in the long term?

a- firms will earn 0 accounting profit

b- firs will earn negative economic profit

c- firms will earn positive econ profit

d- will earn 0 econ profit

They also want to know the quatitiy they should produce to max profit. As their economic advisor, what do you reccomend they do?

a- produce unti MC=MR

b- produce until price < AVC

c-prduce until MR

d- produce as much as possible regardless of cost

Answer 1

Answer 1:

Option D. This means that the firm will earn zero economic profits in the long term. This is because price is at the level equal to the minimum point of the long run average total cost curve of the firm. Thus, the profits of the firm will be zero.

Answer 2:

Option A. In order to maximize profits of the firm, the amount of quantity produced should be at the level where marginal revenue of the firm is equal to the marginal cost of the firm.