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    A Farmer's Decision to Produce or Shut Down

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    Say half of the cost of producing wheat is the rental cost of land (a fixed cost) and half is the cost of labor and machines (a variable cost). If the average total cost of producing wheat is $8 and the price of wheat is $6, what would advise a farmer to do?

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    Solution Preview

    The farmer's Average Fixed Cost (AFC) is $4 and his Average Variable Cost (AVC) is also $4. If he sells his wheat at the market ...

    Solution Summary

    Given data on a farmer's costs and the price at which he can sell his output, this solution shows how he should make the decision to whether to continue producing at a loss or to shut down in the short run.