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Question two The Kansas wheat farmer operates in a perfectly competitive market because they sell the same products, i.e. no product differentiation. There are also many buyers and sellers of wheat with different prices that the supplier doesn’t have control over the prices for the wheat. Question four 0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25 30 35 40 45 Marginal and total revenue graphs TR MR quantity price The marginal revenue and the price are related to the total revenue curve. The marginal revenue is positive and constant at $5 per bushel, while the total revenue curve is increasing at a constant rate such that its slope would equal the marginal revenue. Question six I disagree with the statement because profits are mainly estimated when the total revenue exceeds the total cost. Therefore, the revenue charged reflects the market value of the sales made and the quantity sold. Therefore, firms should focus more on increasing their revenue and reducing costs to make more profit. They should also understand that there is no profit at all output levels because the total cost will exceed revenue with an increase in output, thus making a loss. Question eight a) At MR 3, the firm earns an economic profit because the demand curve is above the minimum average variable cost points. b) The demand curve of MR 2 indicates that the firm is making a loss because the demand curve is below the average total cost curve but above the average variable cost.

c) The demand curve of MR 1 indicates that the firm will shut down because it’s below the average variable cost and average total cost curves. d) The firm’s short-run supply curve is the portion where the marginal cost curve lies above the average variable cost curve. Question ten If a firm’s demand curve is below the average total cost curve, then its earning economic profit; therefore, its average variable cost should not exceed the profit and also don’t exceed the average total cost curve. Alternatively, the firm should maintain its demand curve above the average variable cost curve at the profit maximization output. Question Twelve If the firms earn a positive economic profit, then the price of the trucking services is likely to decrease until equilibrium. The industry quantity of output is likely to decrease because firms will earn zero economic profit in the long run. The profit of the trucking firms will be normal profits earned in the long run.

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