An individual wheat farmer produces wheat in a perfectly competitive market. A decrease in the market demand for wheat will cause the farmer's marginal revenue to ________ and his profit-maximizing level of output to ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a decrease in market demand for wheat would lead to a decrease in the price of wheat. Since marginal revenue for a perfectly competitive firm is equal to the price of the product, the farmer's marginal revenue would decrease. With lower marginal revenue, the profit-maximizing level of output would also decrease, as it would not be profitable to produce as much wheat at the lower price.

An Individual Wheat Farmer Produces Wheat in a Perfectly Competitive