If a perfectly competitive wheat farmer is maximizing its profit and then increases its output,the farmer's
A) total revenue increases, but total cost rises by more so that the farmer's total profit decreases.
B) total revenue decreases and total cost increases, both thereby decreasing the farmer's total profit.
C) total revenue does not change but total cost increases, thereby decreasing the farmer's total profit.
D) marginal revenue increases, but so does marginal cost, so that the farmer's total profit increases.
E) total revenue and total cost both rise, but the effect on the farmer's total profit is uncertain.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the additional output will be sold at the market price. Since the farmer is already maximizing profits, the marginal cost of producing the additional unit will be equal to the market price. Therefore, the increase in output will increase total revenue, but total cost will increase by more due to the additional unit's marginal cost. As a result, the total profit will decrease.

If a Perfectly Competitive Wheat Farmer Is Maximizing Its Profit