Economic statements about purely competitive firms

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1. It would be reasonable for a typical purely competitive wheat  farmer to lower his price per bushel in order to sell more. The  higher sales level will cause average fixed cost to decrease and this will result in more profit for the individual farmer. True or false, and why?

2. In other situations it would be reasonable for a purely competitive wheat farmer to raise his price per bushel because  he could reduce his variable costs by selling less at a higher  price. True or false, and why?

3. Suppose that a price support system for cotton requires the federal government to pay farmers $3,000 per acre to not plant cotton. How would you shift either the supply or demand curve for cotton to illustrate the effect of this action? In youranswer describe  only one shift, not two.

Reference no: EM1311150

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