Microeconomics Please Help

Question

Your farm sells vegetables through a Community Supported Agricultural program, in which families purchase an annual share of vegetables for a price of $500. There are many farms in your area offering a similar program and you all charge the same price. At this price, you sell 100 vegetable subscriptions per year. Although you don’t have complete knowledge of all your costs, you do know that your lowest possible average total cost per vegetable subscription is $450 and that your average total cost this year was $475. You estimate the marginal cost of selling an additional subscription to be $490. Remembering lessons learned in Economics courses, you sketch your production decision this year and come to a conclusion about future production. What did you decide? Are you going to increase, decrease, or keep constant the number of vegetable subscriptions you offer in this market? Write a brief report.

Answer 1

The question involves a decision about future production. Therefore, it is a long run phenomenon that involves long run marginal costs and long run average costs When we connect these two costs measures their behavior are closely related At each output level LAC is simply total cost divided by that output level. However, marginal costs are incurred by moving from.one level to another.

Two facts arise here, when LMC is less than LAC, LAC is falling and rising when LMC is greater than LAC. LAC is at minimum at the output level at which LAC and LMC cross.. It holds that when the marginal cost of the next unit exceeds the average cost of the existing units, making the next unit must drag up average cost. Conversely, when the marginal cost of the next unit luez below the average cost of existing units, an extra unit of production drags down average costs.