Farmer Jones is producing wheat and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $5.00 per bushel. Her minimum average variable costs are $3.50 per bushel. In order to maximize profits or minimize losses in the short run, farmer Jones should
A)increase selling price.
B)produce zero output and shut down.
C)continue producing, but reduce output.
D)increase output.

Question

Quizplus · Accepted Answer

Since the market price ($6.00) is above both the average total costs ($5.00) and marginal costs ($5.00), Farmer Jones can increase her profits by producing more, as each additional bushel produced and sold generates more revenue than its cost.

Farmer Jones Is Producing Wheat and Must Accept the Market