You are economic consultant for Jack, who farms raw cotton in a perfectly compe market. One day he gives you the following data at his present level of production Output = 2000 pounds, market price = $5.00, total cost =$8000, fixed cost=$2000 marginal cost-$5. The minimum of AVC occurs at {1000 pounds at $2} and the minimum of ATC at {1500 pounds at $3.5}. Please help Jack with the following questions based on the above figures: a. Draw a graph for the raw cotton market and a graph for Jack's farm current situ that includes MC, ATC, and AVC, labeling all relevant points on axes with numerical values. Is Jack maximizing the profit (minimizing the loss)? Why or not? Label the total profit/loss area. b. Suppose more farmers enter the raw cotton market until the market price is $3.0 pound. On the same graphs, show the effect of this change in the market place. %3D

ENGR.ECONOMIC ANALYSIS
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Author:NEWNAN
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Chapter1: Making Economics Decisions
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5. You are economic consultant for Jack, who farms raw cotton in a perfectly competitive
market. One day he gives you the following data at his present level of production:
Output = 2000 pounds, market price = $5.00, total cost =$8000, fixed cost=$2000,
marginal cost-$5. The minimum of AVC occurs at {1000 pounds at $2} and the
minimum of ATC at {1500 pounds at $3.5}. Please help Jack with the following
questions based on the above figures:
a. Draw a graph for the raw cotton market and a graph for Jack's farm current situation
that includes MC, ATC, and AVC, labeling all relevant points on axes with
numerical values. Is Jack maximizing the profit (minimizing the loss)? Why or why
not? Label the total profit/loss area.
b. Suppose more farmers enter the raw cotton market until the market price is $3.00 per
pound. On the same graphs, show the effect of this change in the market place.
Would you like to suggest Jack leaving the market in the short run? Explain your
answer.
Transcribed Image Text:5. You are economic consultant for Jack, who farms raw cotton in a perfectly competitive market. One day he gives you the following data at his present level of production: Output = 2000 pounds, market price = $5.00, total cost =$8000, fixed cost=$2000, marginal cost-$5. The minimum of AVC occurs at {1000 pounds at $2} and the minimum of ATC at {1500 pounds at $3.5}. Please help Jack with the following questions based on the above figures: a. Draw a graph for the raw cotton market and a graph for Jack's farm current situation that includes MC, ATC, and AVC, labeling all relevant points on axes with numerical values. Is Jack maximizing the profit (minimizing the loss)? Why or why not? Label the total profit/loss area. b. Suppose more farmers enter the raw cotton market until the market price is $3.00 per pound. On the same graphs, show the effect of this change in the market place. Would you like to suggest Jack leaving the market in the short run? Explain your answer.
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