Macroeconomics of Agriculture AGEC 430 Spring 2010 Slide Show #13

Macro to Market

Price Quantity D S pEpE qEqE General equilibrium in the money and product market General equilibrium in the money and product market

Price Quantity D S pEpE qEqE General equilibrium in the money and product market General equilibrium in the money and product market Equilibrium in the aggregate product market Equilibrium in the aggregate product market

Price Quantity D S pEpE qEqE General equilibrium in the money and product market General equilibrium in the money and product market Equilibrium in the aggregate product market Equilibrium in the aggregate product market Equilibrium in a single market

Price Quantity D S pEpE qEqE Demand for the product in this market would shift to the right as income increased. Supply should shift as interest rates fell, offset in part by higher input prices

Price Quantity D S pEpE qEqE Demand for the product in this market would shift to the left as income decreased. Supply should shift as interest rates rose, offset in part by lower input prices

Market to Micro Perfect Competition Case

Firm is a “Price Taker” Under Perfect Competition Price Quantity D S pEpE qEqE Price O MAX AVCMC The Market The Firm

If Demand Increases…… Price Quantity D S pEpE qEqE Price AVCMC The Market The Firm D1D1

If Demand Decreases…… Price Quantity D S pEpE qEqE Price AVC MC The Market The Firm 9 10 D2D2

Firm is a “Price Taker” in the Input Market Price Quantity D S wr E LELE Price L MAX MVP MIC Labor Market The Firm

A decrease in the supply of labor will…. Price Quantity D S wr E LELE Price L MAX MVP MIC The Firm Labor Market

Market to Micro Imperfect Competition Case

Total revenue is equal to the area 0P E CQ E, which forms the blue box to the left… Notice the monopoly, like the previous forms of imperfect competition, produces where MC=MR (point A), but then reads up to the demand curve (point C) when setting price P E. Total revenue is equal to the area 0P E CQ E, which forms the blue box to the left… Notice the monopoly, like the previous forms of imperfect competition, produces where MC=MR (point A), but then reads up to the demand curve (point C) when setting price P E. The Monopoly Market Supply The Market and Micro are the same

Total variable costs for the monopolist is equal to area 0NAQ E, or the yellow box to the left. Total variable costs for the monopolist is equal to area 0NAQ E, or the yellow box to the left. The Monopoly Market Supply The Market and Micro are the same

Total fixed costs for the monopolist is equal to area NMBA, or the green box to the left… Total fixed costs for the monopolist is equal to area NMBA, or the green box to the left… The Monopoly Market Supply The Market and Micro are the same

Total cost is therefore equal to area 0MBQ E, or the green box plus the yellow box to the left Total cost is therefore equal to area 0MBQ E, or the green box plus the yellow box to the left The Monopoly Market Supply The Market and Micro are the same

Finally, the economic profit earned by the monopolist is equal to area MP E CB, or total revenue (blue box) minus total costs (green box plus yellow box). Finally, the economic profit earned by the monopolist is equal to area MP E CB, or total revenue (blue box) minus total costs (green box plus yellow box). The Monopoly Market Supply The Market and Micro are the same