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Home Price and Output Determination Under Perfect Competition Joint Supply

 

Joint Supply: 

 

Definition:

 

When two or more commodities come into existence as a result of a single process and with the same expenses, they are said to be in joint supply.

 

Explanation:

 

For instance, if we want to raise the output of wheat, the production of straw will be automatically increased. So is the case with the production of mutton and wool, cotton and cottonseeds, beef and hide, gas and coke, etc. The less important product in joint cost, whose price is low, is called by product.

 

The question to be tackled here is as to how the price of each separate product is determined in the market. For the purpose of analysis, we divide joint products into two distant sections:  

 

(1) Products whose proportion can be varied.

 

(2) Products whose proportions cannot be varied, We take both these cases and discuss them one by one.

 

(1) Products whose Proportion can be Varied:

 

In case of those products whose proportions are variable, it is possible to find out the marginal cost of each product separately, in Australia and New Zeeland, for instance, it has been found possible to produce mutton and wool in variable proportions by cross breeding sheep. We can have a breed of sheep which yield more mutton and less wool or less mutton and more wool. The marginal cost of production of each product can be found by considering the quantity of one commodity to remain the same and the other to increase. When we get marginal cost of production of one by applying the marginal analysis, then the commodities become separate. The firm equates marginal cost and price of each product and the total output will be regulated as such in the short period.

 

In case of long run, normal price of the joint products, it is not possible to ascertain the average cost of the production. So, we cannot equate price and average cost. What we have to do is to balance total cost of producing the joint product and the total receipts from the sale of the commodities. When the total receipts and the total costs are equal, firm is in equilibrium.

 

(2) Products whose Proportions cannot be Varied:

 

When the proportions of the joint products are not variable, a rise in the output of one commodity must necessarily be accompanied by a rise in the supply of the other. If, for instance, the price of cotton rises and output of cotton is increased, the total quantity of cotton seed will also increase automatically. In such conditions, it becomes impossible to separate the marginal cost of such product by increasing its output individually. Under these circumstances, the market price of each product is determined by the interaction of the forces of demand and supply at that particular moment. In case of long run equilibrium, the total receipts of a firm must be equal to its total cost.                                                      

Relevant Articles:

Market Structure
Perfect Competition
Equilibrium of the Firm
Short Run Equilibrium of the Price Taker Firm
Short Run Supply Curve of a Price Taker Firm
Short Run Supply Curve of the Industry
Long Run Equilibrium of the Price Taker Firm
Long Run Supply Curve For the Industry
Price Determination Under Perfect Competition
Market Price
Determination of Short Run Normal Price
Long Run Normal Price and the Adjustment of Market Price to the Long Run Normal Price
Distinction/Difference Between Market Price and Normal Price
Interdependent Prices
Joint Supply
Fixation of Railway Rates

Composite or Rival Demand

 

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Rent
Wages
Interest
Profits
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance

History of Money
 

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