Supply 3 stages of production Produce in Stage II TPP Output X 1 X 1 MPP input APP Output I II III.

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Presentation transcript:

Supply 3 stages of production Produce in Stage II TPP Output X 1 X 1 MPP input APP Output I II III

Supply 3 stages of production Multiply MPP and APP by Price of the output

$ Q/yr Supply Where the supply curve comes from –Marginal cost curve MC = Px / MPPx –Average variable cost AVC = Px / APPx MC AVC

$ Q/yr Supply Supply curve is the MC above the AVC for each firm Supply is a schedule of quantities of output that will be offered for sale at alternative prices Shutdown price MC AVC

Supply Firm Supply and Industry Supply $ $$ $ $ $ Firm 1 QY Firm 2 QY Industry QY S Factors change Industry Supply for Output Y –Technology –Costs of inputs to produce Y –Ag. Policy P QtY S0S0S0S0 S1S1S1S1 S2S2S2S2

$ Q/yr Supply Factors that change Supply Function for firm –Price of Input –Productivity of X to produce Quantity of Y –Increased productivity Shifts MC to right Analyze impacts on supply for the industry by starting with the firm MC 1 AVC 1 MC 2 AVC 2

$ Q Y /yr Supply New Technology – BST PST Roundup Ready crops Increase TPP >> Higher MPP >> Lower MC Supply shifts to the right Y X TPP 0 TPP 1 Y X MPP 0 MPP 1 $ Q Y /yr The Firm The Industry S0S0S0S0 S1S1S1S1 AVC 0 AVC 1 MC 0 MC 1

$ Q/yr Supply Inflation in Input Prices and Supply Price input increases Px MC = Px / MPPx AVC = Px / APPx MC 2 AVC 2 MC 1 AVC 1 S0S0S0S0 S1S1S1S1 $ Q/yr

Supply Cross elasticity of supply Elasticity with respect to the price of another crop Es(Q Y, P X ) = %ΔQ Y / %ΔP X Es(Q Y, P x ) = S of Y wrt PX PXPXPXPX QYQYQYQY ,600 ?

Supply and Demand Equilibrium price is where Demand equals Supply $ P 1 D q 1 Q/yr S1S1 S2S2 P 2 q 2

Supply and Demand Equilibrium price is where Demand equals Supply After the crop has been harvested the supply becomes perfectly inelastic Supply in the marketing year is S 1 or S 2 $ P 1 D q 1 Q/yr P 2 q 2 S1S1S1S1 S2S2S2S2

Supply Elasticity of Supply Generally mean the elasticity of quantity supplied with respect (wrt) own price Es = %ΔQtY / %ΔPY Es = Qt Supplied Y = Old Qt Y * [1+ Es * %ΔPy] Qt Supplied Y = Old Qt Y * [1+ Es * (Price Y new /Price Y old ) / Price Y old )] PY QtY S ,600 ?