Joseph Farms Inc Is A Small Firm In The Agricultural Industr

Joseph Farms Inc Is A Small Firm In the Agricultural Industrythey

Joseph Farms, Inc. is a small firm in the agricultural industry. They have asked you to help them complete the limited data they have gathered in an effort to enable effective decision-making. Some work can be done using MS Excel but it must be copied to an MS Word file for the final submission of this assignment. To assist Joseph Farms, Inc., respond to the following: Using MS Excel or a table in MS Word, complete Table-1 (Joseph Farms, Inc., Cost and Revenue Data) . Assume that the price is $165. Assume the fixed costs are $125, at an output level of 1. Assume that the data represents a firm in pure competition. Show your calculations. Explain the MC=MR Rule. Describe the market structures to which this rule applies. Create a chart to illustrate the data in Columns 9 and 10. Describe the profit-maximizing (or loss-minimizing) output for this firm. Explain whether there is an accounting profit or not. Explain why a firm in pure competition is considered to be a “price taker.”

Paper For Above instruction

This analysis focuses on Joseph Farms, Inc., a small agricultural firm operating in a perfectly competitive market. The primary goal is to determine the profit-maximizing output level by completing the provided cost and revenue data, understanding key economic principles such as the marginal cost (MC) equals marginal revenue (MR) rule, and exploring the characteristics of market structures like perfect competition. The process involves calculating various cost measures, creating visual representations, and analyzing profit and loss scenarios based on the assumed data.

Completing the Cost and Revenue Data

Given the assumptions, the price per unit is set at $165, with fixed costs of $125 at an output level of 1. The data provided in Table-1 includes output levels from 0 to 1 unit, with various costs recorded for each. To complete the table, we calculate total variable costs, total costs, average fixed costs, average variable costs, average total costs, marginal costs, and marginal revenues.

At zero output, total fixed costs are typically considered, with variable costs and total costs being zero. For each output level, total variable costs are derived from the data or assumed; total costs are obtained by summing fixed and variable costs. Average costs are calculated by dividing total costs or fixed/variable costs by output levels. Marginal cost (MC) is the change in total cost when output increases by one unit, while marginal revenue (MR) remains constant at $165 in perfect competition.

Calculate and Show the Data

For example, at output level 1, we have data including total variable and fixed costs, allowing us to compute total costs, average costs, and marginal costs. The marginal cost between two output levels is computed as:

MC = (Total Cost at current output - Total Cost at previous output) / (Current output - Previous output)

Similarly, marginal revenue equals the price in perfect competition, so MR = $165 across all output levels.

The MC=MR Rule and Market Structure

The MC=MR rule states that a profit-maximizing firm will produce the output level where marginal cost equals marginal revenue. This is because, below this level, the cost of producing an additional unit is less than the revenue it generates, so increasing output increases profit. Above this point, the cost exceeds revenue, and decreasing output maximizes profit or minimizes loss.

This rule applies specifically in perfect competition, where firms are price takers. In such markets, individual firms face a perfectly elastic demand curve, and their marginal revenue equals the market price. Therefore, profit maximization occurs where MC equals the common price, which is also MR in perfect competition.

Graphical Illustration

A chart plotting marginal cost and marginal revenue against output demonstrates the profit-maximizing output where the two curves intersect. This point indicates the optimal level of production, balancing marginal costs and revenues. The graph also helps visualize whether the firm operates at a profit or loss at this level.

Profit and Loss Analysis

By completing Table-2 with total revenue (price times output), total costs from Table-1, and calculating profit or loss (Total Revenue minus Total Costs), we can identify whether the firm earns an accounting profit. If total revenue exceeds total costs, the firm earns a profit; if not, it incurs a loss.

At the profit-maximizing output, if total revenue surpasses total costs, the firm earns an economic profit, which covers opportunity costs. If total costs exceed total revenue, the firm incurs an economic loss, potentially operating at a loss in the short run but continuing if losses are less than fixed costs or if it expects future profitability.

Break-even Analysis

The break-even output level occurs when total revenue equals total costs, resulting in zero economic profit. Using the data, this point is identified where the total revenue (price times output) matches total costs from Table-1. Determining this output helps the firm understand its financial viability in the short run.

Conclusion

In summary, the analysis of Joseph Farms' data illustrates the core principles of profit maximization in perfect competition. The firm maximizes profit where marginal cost equals marginal revenue, which in this case is the market price of $165. The graphical representation aids in visualizing the optimal production level and potential profit or loss scenarios. As a price taker, Joseph Farms must accept the market price dictated by overall market conditions, underscoring the importance of efficient cost management and output decisions in such a competitive environment.

References

  • Frank, R. H., & Bernanke, B. S. (2019). Principles of Economics (8th ed.). McGraw-Hill Education.
  • Mankiw, N. G. (2021). Principles of Economics (9th ed.). Cengage Learning.
  • Perloff, J. M. (2019). Microeconomics (8th ed.). Pearson.
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  • Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach (9th ed.). W.W. Norton & Company.
  • Samuelson, P. A., & Nordhaus, W. D. (2010). Economics (19th ed.). McGraw-Hill Education.
  • Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and Policy (13th ed.). Cengage Learning.
  • Hansen, A. H., & Mowen, M. M. (2017). Cost Management: Strategies for Business Decisions (7th ed.). Cengage.
  • Sloman, J., & Welsh, E. (2020). Economics (10th ed.). Pearson.
  • Green, R. (2022). Introduction to Microeconomics. Academic Press.

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