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.
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