A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?
A)The price remains constant at $15.
B)The price falls to $12.
C)The price rises above $15.
D)There is insufficient information to answer the question.

Question

Quizplus · Accepted Answer

In the long run, in a constant-cost industry, as more firms enter the market, the supply of wheat increases, leading to a decrease in the market price. Since the market price is currently $15 and the farmer's total cost is $36,000 ÷ 3,000 bushels = $12 per bushel, which is lower than the prevailing market price. Therefore, more farmers will enter the market and increase the supply of wheat until the market price falls to the minimum average total cost of $12 in the long run. Therefore, the market price of wheat will fall to $12.

A Perfectly Competitive Wheat Farmer in a Constant-Cost Industry Produces