Question

Farmer Ted sells winter wheat in a perfectly competitive market. The market price for a bushel of winter wheat is $9. Ted has two hundred and seventy bushels of wheat to sell. If his total variable cost is $2,000 and his total fixed cost is $500, then Ted ________

Answer 1

Farmer Ted will receive $9 x 270 = $2,430

This amount does not cover all of Ted's costs = $2,000 + $500 = $2,500, but it helps Ted to minimize his losses.

In a perfectly competitive market, a supplier cannot set the price, they are all price takers. But suppliers will keep selling their products as long as the price exceeds variable costs. in this case variable costs = $2,000, therefore $2,430 exceeds them.

Ted will not make a profit, but he will minimize his losses because the other option of not selling anything will result in a net loss of $500, while selling at the current price results in a net loss of $70.