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-(Figure: Costs and Profits for Tomato Producers)Use Figure: Costs and Profits for Tomato Producers.The market for tomatoes is perfectly competitive.The market price of a bushel of tomatoes is $18.If the market price falls to $16,the farmer's marginal revenue _____ and the profit-maximizing output _____.

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-(Figure: Costs and Profits for Tomato Producers)Use Figure: Costs and Profits for Tomato Producers.The market for tomatoes is perfectly competitive.The market price of a bushel of tomatoes is $18.If the market price falls to $16,the farmer's marginal revenue _____ and the profit-maximizing output _____.

Quizplus · Accepted Answer

In a perfectly competitive market, the marginal revenue is equal to the market price, so if the market price falls to $16, the marginal revenue for the farmer also falls to $16. To maximize profits, the farmer should produce the output at which marginal cost equals marginal revenue. If the marginal revenue falls to $16, the profit-maximizing output will be lower than it was at a price of $18, so output will decrease. Therefore, the correct answer is that the farmer's marginal revenue decreases and the profit-maximizing output decreases, making answer choice D the correct one.

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