Question

A wheat farmer sells wheat to a grain broker Chicago. Since the market for wheat is generally considered to be competitive, the wheat farmer maximizes his profit by choosing_____

Answer 1

Answer:

The correct answer is: choosing output level where price equals marginal cost.

Explanation:

Since the market for wheat is competitive, the farmers cannot determine the price on their own, they have to take whatever price is determined by the market forces.  

In a perfectly competitive market, the seller will be able to maximize profit at the point of output where the price of the product is equal to the marginal cost of production of the last unit of output.  

So the wheat farmer will maximize its profit by choosing output where the price of wheat equals the marginal cost of producing the last unit of wheat.