Problem
The table below shows Ali's monthly costs of producing wheat. Suppose the current market price of wheat is $74.90 per bushel.
Ali's Wheat Production Costs
|
Quantity (bushels)
|
AVC (dollars)
|
ATC (dollars)
|
MC (dollars)
|
|
0
|
-
|
-
|
-
|
|
500
|
$19.90
|
$39.90
|
$4.90
|
|
1,000
|
16.90
|
27.40
|
14.90
|
|
1,500
|
14.90
|
26.57
|
22.90
|
|
2,000
|
19.90
|
28.65
|
34.90
|
|
2,500
|
24.90
|
31.90
|
44.90
|
|
3,000
|
29.90
|
35.73
|
54.90
|
|
3,500
|
34.90
|
39.90
|
64.90
|
|
4,000
|
39.90
|
44.28
|
74.90
|
|
4,500
|
44.90
|
48.79
|
84.90
|
|
5,000
|
49.90
|
53.40
|
94.90
|
1. If the market price is $74.90 per bushel of wheat, and Ali chooses to produce wheat, how much will he produce per month to maximize his profits in the short run?
2. Calculate Ali's monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of $74.90.
3. Assume that the market price of wheat falls to $22.90 per bushel. How much wheat will Ali choose to produce per month in order to maximize his profits in the short run?
4. Calculate Ali's monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of $22.90.
5. If the market price of wheat instead falls to $14.90 per bushel, how much wheat will Ali choose to produce per month in order to maximize his profits in the short run?