Economics!!!?

Question

Can someone please help me answer this questions, thanks:

1. Does Kansas whaet farmer fit the perfectly competitive market structure?? Explain.

2.Consider this statement: "A firm should increase output when it makes a profit" Do you agree or disagree? Explain.

3. Supppose a perfectly competitive firms demand curve is below its average total cost curve. Explain the conditions under which a frim continues to produce in the short run.

Thanks a lot for those who helped.

Answer 1

1. Yes, Kansas wheat farmers meet the perfectly competitive market structure. Perfectly competitive markets have many producers who all market a homogenous product. They are price takers, meaning they have no influence over the price of their commodity in the free market.

2. No, a firm should not increase output simply because it makes a profit. It should produce to the point that marginal revenue equals marginal cost. It is possible to have a higher marginal cost than marginal revenue and still have a profit. However, in this instance, each additional unit produced will diminish the total profit. Thus, producing more simply because a profit has been made will eventually eliminate the profit.

3. The firm will continue to produce in the short run as long as it is making more revenue than its variable cost. Since fixed costs cannot be eliminated in the short run, they will be incurred regardless of production. So, as long as a firm makes more than the variable cost, it is diminishing its loss, and thus will continue production.