Question

In: Economics

Suppose a farmer is growing corn. The farmer's total variable and fixed costs of growing corn...

Suppose a farmer is growing corn. The farmer's total variable and fixed costs of growing corn are shown below. A portion of the N fertilizer the farmer applies also runoff into the local stream, but the farmer faces no requirement to control the N runoff from the farm.

What is the farmer's marginal cost to produce corn when producing 140,000 bushels?

Bushels of corn	T. Variable Cost	T. Fixed Cost
100,000	$300,000	$50,000
120,000	$370,000	$50,000
140,000	$450,000	$50,000
160,000	$550,000	$50,000
180,000	$690,000	$50,000

$3.21

$3.50

$3.57

$3.75

$4.00

Question 2

Suppose a farmer is growing corn. The farmer's total variable and fixed costs of growing corn are shown below. A portion of the N fertilizer the farmer applies also runoff into the local stream, but the farmer faces no requirement to control the N runoff from the farm.

What is the average total cost to produce corn when producing 140,000 bushels?

Bushels of corn	T. Variable Cost	T. Fixed Cost
100,000	$300,000	$50,000
120,000	$370,000	$50,000
140,000	$450,000	$50,000
160,000	$550,000	$50,000
180,000	$690,000	$50,000

$3.21/bu

$3.50/bu

$3.57/bu

$4.00/bu

Expert Solution

(1)

The correct answer is (e) $4

Formula Marginal Cost = Change in Total Cost / Change in Output

Total Cost of Producing 140,000 bushels of corn = T. Variable Cost + T. Fixed cost = 450,000 + 50,000

= 500,000

Total Cost of Producing 120,000 bushels of corn = T. Variable Cost + T. Fixed cost = 370,000 + 50,000

= 420,000

Hence Change in Total Cost = 500,000 - 420,000 = 80,000

Change in Output = 140,000 - 120,000 = 20,000

Hence, marginal cost to produce corn when producing 140,000 bushels = Change in Total Cost / Change in Output

= (80,000)/20,000

= 4

Hence, the correct answer is (e) $4

(2)

The correct answer is (c) $3.57/bu

Average Total Cost = Total Cost / Output

Total Cost of Producing 140,000 bushels of corn = T. Variable Cost + T. Fixed cost = 450,000 + 50,000

= 500,000

Output = 140,000

Hence Average Total Cost of producing 140,000 bushels = 500,000/140,000

= 3.57

Hence, the correct answer is (c) $3.57/bu

Rahul Sunny answered 2 years ago

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