Question

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000. The prevailing market price is $15. What will happen to the market price of wheat in the long run

Answer 1

B) The price falls to $12

Step-by-step explanation

Here are the options to this question :

A) The price remains constant at $15.

B) The price falls to $12.

C) The price rises above $15.

D) There is insufficient information to answer the question.

A perfect competition is characterised by many buyers and sellers of homogenous goods and services.

There are no barriers to entry or exit of firms.

Prices are set by market forces

Price = marginal cost = marginal revenue

Here the marginal revenue = $15

Marginal Cost = $36,000 / 3000 = $12

The marginal revenue is greater than marginal cost. In the long run, new firms would enter into the industry and drive marginal revenue to $12.

I hope my answer helps you