Question

A Canadian farm family is growing canola, which will be processed into canola oil and shipped to US markets where fast-food restaurants and consumers are using vast quantities of the product. Canadian farmers generally operate in a perfectly competitive market.

A. Explain the concept of a “price-taker” and how a Canadian farmer is relegated to the role of a price-taker.

B. Explain how a canola farm family perceives the demand curve for their product given their role as price-takers.

C. Explain why a profit-maximizing farm family would have a supply curve that was identical to the marginal cost curve of the operation.

Answer 1

Price taker is one which can't set price. It takes price given. He is relegated to that position due to high no. Of suppliers and consumers of the commodity. In other words his actions hardly matter

2 it see its demand curve as horizontal line I. E given. It can supply as much as possible given demand curve.

3 in perfect market conditions like in this case producer equates price with marginal cost. So supply above average variable cost is marginal cost curve