Supply
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Supply. 3 stages of production Produce in Stage II. II. III. Output. I. TPP. X. input. Output. 1. MPP. APP. X. input. 1. $/Output. y*. TVP = TPP * Py. *. X. input. $. X. 1. 1. MVP = P MPP. y. X1. MFC. X1. *. X. X. input. 1. 1. Supply.

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Supply

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Supply

Supply

  • 3 stages of production

  • Produce in Stage II

II

III

Output

I

TPP

X

input

Output

1

MPP

APP

X

input

1


Supply1

$/Output

y*

TVP = TPP * Py

*

X

input

$

X

1

1

MVP = P MPP

y

X1

MFC

X1

*

X

X

input

1

1

Supply

  • 3 stages of production

  • Multiply MPP and APP by Price of the output


Supply2

Supply

  • Where the supply curve comes from

    • Marginal cost curve MC = Px / MPPx

    • Average variable cost AVC = Px / APPx

$

MC

AVC

Q/yr


Supply3

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

Q/yr


Supply4

Supply

$

$

$

$

$

$

S

  • Firm Supply and Industry Supply

Firm 1 QY

Industry QY

Firm 2 QY

  • Factors change Industry Supply for Output Y

    • Technology

    • Costs of inputs to produce Y

    • Ag. Policy

S0

S1

S2

P

QtY


Supply5

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

$

MC1

MC2

AVC1

AVC2

Q/yr


Supply6

Supply

  • New Technology – BST PST Roundup Ready crops

  • Increase TPP >> Higher MPP >> Lower MC

  • Supply shifts to the right

Y

TPP1

Y

TPP0

MPP1

X

X

MPP0

$

MC0

AVC0

S0

$

S1

MC1

AVC1

Q Y /yr

Q Y /yr

The Industry

The Firm


Supply7

Supply

S1

  • Inflation in Input Prices and Supply

    Price input increases Px

    MC = Px / MPPx

    AVC = Px / APPx

S0

$

Q/yr

$

MC2

MC1

AVC2

AVC1

Q/yr


Supply8

Supply

  • Cross elasticity of supply

  • Elasticity with respect to the price of another crop

    Es(QY, PX) = %ΔQY / %ΔPX

    Es(QY, Px) = -0.15

PX

2.5

S of Y wrt PX

2.25

?

2,600

QY


Supply and demand

Supply and Demand

  • Equilibrium price is where Demand equals Supply

S1

$

S2

P

1

P

2

D

q

Q/yr

q

2

1


Supply and demand1

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 S1 or S2

S1

S2

$

P

1

P

2

D

q

Q/yr

q

2

1


Supply9

Supply

  • Elasticity of Supply

  • Generally mean the elasticity of quantity supplied with respect (wrt) own price

    Es = %ΔQtY / %ΔPY

    Es = +0.20

    Qt Supplied Y = Old Qt Y * [1+ Es * %ΔPy]

    Qt Supplied Y = Old Qt Y * [1+ Es * (Price Ynew /Price Yold) / Price Yold)]

PY

S

2.5

2

2,600

?

QtY


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