Supply and Demand- a Case Study Milk Price

1909 WordsDec 8, 20128 Pages
The market supply and demand curve above shows the milk price support problem. In order to solve the milk surpluses in the market, the government should take the steps to increase the market demand to the milk products by exploring overseas markets. For instance, the government should export the milk surpluses abroad. This would cut the cost of storage for milk products and encourages the local dairy farmers continue in dairy business. b. The small dairy farmers would prefer the proposal 4 because it benefits them the most through the buyout program. This program encourages small dairy farmers to switch from dairy business to another business. The rewards from government can be used as capital to start a new business. c. For…show more content…
For example, a used-car seller who might sell branded luxury cars during prosperity periods. However, during depression periods, he might switch to sell low-cost cars in order to sustain his business. In conclusion, the statement is valid. Question 3 a. Diminishing returns to a single factor are observable in all production processes at some level of inputs. The ‘law of diminishing marginal productivity’ is defined as the marginal product of an input is the additional output generated by employing one more unit of the input, all other inputs held fixed. The extra output, or returns, to the single input diminish because all other inputs are held fixed. One of the factors is capital. For example, as the stock of capital rises, the extra output produced from an additional of capital falls (Mankiw, 2007). Returns to scale are different from the returns to a single factor. Returns to scale are proportional increases in all inputs. While each factor in production process generates diminishing returns, the output may more than double, less than double, or exactly double when all the inputs are doubled. The distinction again is that with returns to scale, all inputs are increased in the same proportion and no input is held fixed. b. In filling a vacant position, we should be concerned with the marginal
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