Rick is a tomato farmer and the world tomato market is perfectly competitive.

The market price is $17 a basket. Rick sells 600 baskets a week and his marginal cost is $19 a basket.

The market price falls to $13 a basket, and Rick cuts his output to 375 baskets a week.

Rick's average variable cost and marginal cost fall to $13 a basket.

Rick is ______.

A.

not maximizing profit because he has cut his tomato production

B.

not maximizing profit because he is incurring an economic loss

C.

not maximizing profit because marginal revenue does not equal marginal cost

D.

maximizing profit and he is making an economic profit

E.

maximizing profit and he is incurring an economic loss

Expert Solution

E. maximizing profit and he is incurring an economic loss

(A price = MC = $13 so he is maximizing his profits and also MC = AVC at the minimum of AVC which means ATC exceeds AVC at this point so there are economic losses.)

Rahul Sunny answered 2 years ago

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