A local farmer is producing organic tomatoes in a perfectly competitive market. Due to a sudden increase in demand, the market price for tomatoes rises. How should the farmer adjust their production to maximize profits, considering the principles of perfect competition?

In a perfectly competitive market, farmers are price takers, meaning they must accept the market price as given. When the demand for organic tomatoes increases, the market price rises, which can lead to higher profits for the farmer. To maximize profits, the farmer should increase their production of tomatoes since the higher price makes it more profitable to sell additional units. For example, if the farmer was originally producing 100 pounds of tomatoes at $2 per pound, and the price rises to $3, they should produce more than 100 pounds as long as their costs do not increase significantly. This adjustment helps the farmer take advantage of the higher prices while still covering their costs, aligning production with the new market conditions.