The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is generally considered to be competitive, the Wheeler Wheat Farm maximizes its profit by choosing
A) to produce the quantity at which average variable cost is minimized.
B) to produce the quantity at which average fixed cost is minimized.
C) to sell its wheat at a price where marginal cost is equal to average total cost.
D) the quantity at which the farm's marginal cost of production is equal to the market price.

Question

Quizplus · Accepted Answer

In a competitive market, farmers will choose to produce the quantity at which their marginal cost of production is equal to the market price. If they produce less than this quantity, then they will be able to sell their output at a higher price than their marginal cost, and so they will be able to increase their profit by producing more. If they produce more than this quantity, then they will be selling their output at a price lower than their marginal cost, and so they will be reducing their profit by producing more. Therefore, to maximize their profit, farmers will choose the quantity at which their marginal cost equals the market price.

The Wheeler Wheat Farm Sells Wheat to a Grain Broker