In the perfectly competitive market for tomatoes in the long run, tomato farms will all:?

Question

a. break even.

b. earn an economic loss.

c. earn an economic profit.

d. earn an economic loss but continue to produce.

Answer 1

You wish.

Many California tomato farmers barely break even, even in an unfair market.

The truth is many of those farmers are under contract by primarily canning companies to grow certain amounts to meet the needs for canned and processed tomatoes. Very few farmers grow and sell their product individually, excepting those who grow specifically for farmer's markets or independent grocers.

California tomatoes are grown on properties that are leased, so most farmers have to earn enough to pay off the lease. They have to buy their seed, fertilizers, and herbicides, they have to contract with the workers to use the equipment to prepare the fields for planting, they have to supply the right equipment including all the tractors and tractor attachments. They have to maintain and fix their own equipment. They have to pay for irrigation water and irrigation equipment including pumps, piping, hoses, etc. They have to contract and pay the tomato pickers, as tomatoes must be picked by hand, they must pay for the trucks to haul the tomatoes to the processor plant. THEN they get paid their money.

It's not about market competition, it's about a good tomato year and a bad tomato year. This year the salmonella scare ruined the sales of the early California crops - the tomatoes were grown but not sold, so the farmer's lost money at the first. That was one thing out of their hands - they did their part in providing their contracted quota. But the drought affecting the west side of California's Central Valley where many of the whole nation's summer tomatoes are grown ruined the mid-July late August tomato crop. Prices for supermarket tomatoes will be high because of the decrease in the amount of tomatoes grown. That was also out of the tomato farmers hands. In a perfect competitive market, you would have to not have as factors environmental and emergency conditions, assume that every farmer grows the same amount of quality tomatoes year after year, and assume that the competiton is fair concerning world market prices. But it is not about competitive market - it's about meeting consumer demand. If consumers demand pizza sauce, spaghetti sauce, ketchup, and canned tomatoes, farmers will be contracted to grow tomatoes any which way they can. They would have to start building more greenhouses for year-round hothouse tomatoes to eliminate environmental conditions as a factors.

Your economics class has it all wrong. There is no such thing as a perfectly competitive market for tomatoes. I would argue eliminating that question from your test.