In the long run, a farmer faces a critical decision regarding whether to rent a field for $1,000 for the upcoming season. Unlike the short run, where costs are already incurred, the farmer now has the option to choose whether to incur this cost. The cost of seeds remains at $200, and the farmer must evaluate whether to produce or not based on potential revenues.

If the farmer decides not to produce, he incurs no costs, resulting in zero profit and zero loss. Conversely, if he chooses to produce, he generates revenue of $500. However, with the total costs of renting the field ($1,000) and seeds ($200), his total costs amount to $1,200. This results in a loss of $700, calculated as:

Loss = Revenue - Total Cost = $500 - $1,200 = -$700.

In this scenario, the best option is to refrain from production, as it avoids losses. If the revenue drops to $100, the situation worsens. Again, if the farmer does not produce, he has no costs. If he produces, his revenue of $100 against total costs of $1,200 leads to a loss of $1,100:

Loss = Revenue - Total Cost = $100 - $1,200 = -$1,100.

Thus, the optimal decision remains not to produce, as he cannot cover his costs. This highlights the importance of understanding relevant costs in the long run, where all costs are considered. The farmer can exit the market if the price falls below the average total cost (ATC), which is crucial for long-term sustainability.

In the long run, the decision to exit the market is based on the relationship between total revenue and total cost. If total revenue is less than total cost, the farmer should exit. This can be expressed mathematically as:

Total Revenue < Total Cost.

When analyzing average values, average revenue (AR) is equivalent to price (P), leading to the conclusion that:

Exit if Price < Average Total Cost (ATC).

Conversely, if the price exceeds the average total cost, firms are incentivized to enter the market, as they can potentially earn profits. This relationship emphasizes that in the long run, the average total cost curve is the critical factor for decision-making, unlike the average variable cost curve, which is more relevant in the short run.

In summary, the long-run decision-making process for the farmer revolves around the ability to cover total costs with total revenues, guiding whether to produce or exit the market based on the average total cost.