Analysis of a Farmer's Sales Decision
A farmer who sells wheat in a large, competitive market has just finished the harvest. All costs for the season (land lease, equipment, seeds, fertilizer) have already been paid and are non-refundable. The farmer calculates that the total cost for the season, when divided by the number of bushels harvested, comes out to $10 per bushel. The current market price for wheat is $7 per bushel. The additional cost to transport and sell the harvested wheat is $2 per bushel. A friend advises the farmer, 'You shouldn't sell your wheat. The market price of $7 is less than your $10 total cost per bushel. You'll just be losing money on every sale.' Critically evaluate the friend's advice. Is it sound economic reasoning for this specific situation? Justify your position by explaining which costs are relevant and which are irrelevant to the immediate decision to sell the already-harvested wheat.
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CORE Econ
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
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