Answered: After serving as President of the…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter22: Price Takers And The Competitive Process

Section: Chapter Questions

Problem 6CQ: Suppose that the development of a new drought-resistant hybrid seed corn leads to a 50 percent...

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After serving as President of the United States for eight years, Dena has retired from politics and has decided to become a wheat farmer. The market for wheat is perfectly competitive and the current market price for wheat is $10 per bushel. Dena is currently producing 8 bushels (Dena can only produce this good in whole units). Her total cost at 8 units of output is $88 and her variable cost at 8 units of output is $64. Dena knows that if she produces a 9^th unit her total cost will become $97, and if she produces a 10^th unit her total cost will become $110. Dena’s goal is to maximize her profits. Based on this information, identify whether each of the following would be true or false and briefly explain your reasoning.

Dena is currently losing money in the short-run and she would be better off if she shutdown and produced zero.
Dena is not currently profit maximizing at 8 units of output and she could increase her profits if she expanded output by one unit.
Dena would increase her short-run profits if she decided to increase her price to $11 per bushel.

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