**Economic Decision-Making for Agricultural Entrepreneurs**Luis and Sarah have recently acquired a piece of land and a tractor with the plan to start growing and selling organic peas. They are aware that the market for organic peas is perfectly competitive.**Understanding Long-Run Profit in a Perfectly Competitive Market**In such a market, firms can expect certain outcomes in terms of profit over the long run:- ○ Firms will earn zero economic profit in the long run.- ○ Firms will earn positive economic profits in the long run.- ○ Firms will earn zero accounting profit in the long run.- ○ Firms will earn negative economic profits in the long run.**Profit Maximization Strategy**Luis and Sarah are interested in determining the optimal quantity of peas to produce in order to maximize their profits. As their economic advisor, you should consider the following options:- ○ Produce until marginal revenue is equal to price.- ○ Produce as much as possible, regardless of cost.- ○ Produce until marginal cost is equal to marginal revenue.- ○ Produce until price falls below the average variable cost.Understanding these concepts can significantly impact their decision-making process and long-term success in the competitive agricultural market.

Perfectly Competitive Market is the market in which buyers and sellers are large in numbers and they are well informed about the characteristics of market and the market price of a commodity is beyond the control of individual buyers and sellers i.e. the buyers and sellers cannot influence the price in the market.The correct answer is option a. Firms will earn zero economic profit in the long run In the perfectly competitive market, the firm can earn a positive economic profit in the short run, but the economic profit will be zero in the long run. As there is a freedom of entry and exit of firms, so firms cannot earn a positive or negative profit in the long run. They will have zero economic profit in the long run. So, because of freedom of entry and exit of firms, firms can only earn economic profit in the long run. Thus, option a. is correct. Options b. and d. are not correct because they have wrong answers. Firms only earn zero economic profit in the long run. Option c. is not correct because in economics, we only consider the economic profit. We don't consider the accounting profit.The correct answer is option c. produce until marginal cost is equal to marginal revenue Profit = Total Cost - Total Revenue For maximizing profit, we need to differentiate the profit wrt quantity and put it equal to zero. So, we need to put ∂Profit/∂Quantity =0 ⇒Total Cost/∂Quantity - ∂Total Revenue/∂Quantity = 0 ⇒Marginal Cost - Marginal Revenue = 0 ⇒Marginal Cost = Marginal Revenue Thus, the profit maximization condition is produce until marginal cost is equal to marginal revenue So, option c. is correct. Other options are not correct because they have wrong answers.

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What does that mean in terms of long-run profit?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

**Economic Decision-Making for Agricultural Entrepreneurs**

Luis and Sarah have recently acquired a piece of land and a tractor with the plan to start growing and selling organic peas. They are aware that the market for organic peas is perfectly competitive.

**Understanding Long-Run Profit in a Perfectly Competitive Market**

In such a market, firms can expect certain outcomes in terms of profit over the long run:

- ○ Firms will earn zero economic profit in the long run.
- ○ Firms will earn positive economic profits in the long run.
- ○ Firms will earn zero accounting profit in the long run.
- ○ Firms will earn negative economic profits in the long run.

**Profit Maximization Strategy**

Luis and Sarah are interested in determining the optimal quantity of peas to produce in order to maximize their profits. As their economic advisor, you should consider the following options:

- ○ Produce until marginal revenue is equal to price.
- ○ Produce as much as possible, regardless of cost.
- ○ Produce until marginal cost is equal to marginal revenue.
- ○ Produce until price falls below the average variable cost.

Understanding these concepts can significantly impact their decision-making process and long-term success in the competitive agricultural market.

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