Farmer Bob sells cotton in a perfectly competitive market. At his current level of production, the marginal cost of one pound of cotton is $14, the average total cost is $15, and the average variable cost is $12. The industry price of cotton is $14 per pound. To maximize profits or minimize losses, Farmer Bob should

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Since the price of cotton ($14) is equal to the marginal cost, Farmer Bob is maximizing profits (or minimizing losses) by producing at this level. Continuing at the current level of production is the best option because the price covers the marginal cost, indicating no immediate financial benefit from adjusting production levels. Shutting down is not the best option since the price is above the average variable cost ($12), meaning Bob can cover his variable costs and contribute to some of the fixed costs.

Farmer Bob Sells Cotton in a Perfectly Competitive Market