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# Supply - PowerPoint PPT Presentation

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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## PowerPoint Slideshow about 'Supply' - astin

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Presentation Transcript

• 3 stages of production

• Produce in Stage II

II

III

Output

I

TPP

X

input

Output

1

MPP

APP

X

input

1

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

• Where the supply curve comes from

• Marginal cost curve MC = Px / MPPx

• Average variable cost AVC = Px / APPx

\$

MC

AVC

Q/yr

• 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

\$

\$

\$

\$

\$

\$

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

• 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

• 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

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

• 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

• Equilibrium price is where Demand equals Supply

S1

\$

S2

P

1

P

2

D

q

Q/yr

q

2

1

• 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

• 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