Question
Fluffy-Gro, Inc., grows cotton and sells it in a perfectly competitive market. Fluffy Gro worker Ima Doltt drives a new tractor into the Wetlands adjoining
Fluffy-Gro, Inc., grows cotton and sells it in a perfectly competitive market. Fluffy Gro worker Ima Doltt drives a new tractor into the Wetlands adjoining the property; a new replacement tractor is purchased the next day for $40,000. A) Is replacing this tractor a fixed cost, a variable cost, or both? Explain. B) How is Fluffy-Gro's MC curve (for this season) changed? If so, how? C) Does Fluffy-Gro respond to the tractor incident by raising the price of its cotton? Explain. D) Does Fluffy-Gro respond to the tractor incident by changing the quantity it produces? If so, how? E) Why does Fluffy-Gro produce the quantity it does? 1) It costs too much to produce any more. 2) It can't find buyers for any more cotton. 3) It doesn't want to lower its price to attract more buyers.
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