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Figure: Costs and Profits for Tomato Producers
-(Figure: Costs and Profits for Tomato Producers) Look at the 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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Use the following to answer questions:
Figure: Costs and Profits for Tomato Producers 
-(Figure: Costs and Profits for Tomato Producers) Look at the 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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In a perfectly competitive market, the marginal revenue equals the market price. If the market price falls from $18 to $16, the marginal revenue decreases. Consequently, the profit-maximizing output also decreases because the farmer will produce less when the price and marginal revenue are lower.

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