11. The production of agricultural products like wheat is one of the few examples of a perfectly competitive industry. In this question, we analyze results from a study released by the U.S. Department of Agriculture about wheat production in the United States back in 2013.
The average variable cost per acre planted with wheat was $127 per acre. Assuming a yield of 44 bushels per acre, calculate the average variable cost per bushel of wheat.
The average price of wheat received by a farmer in 2013 was $7.58 per bushel. Do you think the average farm would have exited the industry in the short run? Explain.
With a yield of 44 bushels of wheat per acre, the average total cost per farm was $4.80 per bushel. The harvested acreage for rye (a type of wheat) in the United States increased from 242,000 in 2010 to 306,000 in 2013. Using the information on prices and costs here and in parts a and b, explain why this might have happened.
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Using the above information, what do you think will happen to wheat production and prices after 2013?