Question

The following is quoted from CBC news “B.C. cherry prices plummet due to U.S. bumper crops” on August 8, 2012. Please make your answers short but to the point. Only the first 6 sentences of each question will be considered.

“Last week, growers who work with the Okanagan Tree Fruit Cooperative found out their cherries would fetch (*to be sold for a particular amount of money) only 40 cents per pound.” Would it ever be in the interests of a single farmer to reduce his output in an effort to raise the price? Why?

Answer 1

1 - Due to the bumper cherry crops , the supply of the cherry will increase due to good yield. Thus the increase in supply will cause the rightward shift in supply curve. This shift will decrease the equilibrium price and increase the equiilibrium quantity.

2 - No , it is not in the interest of single farmer to limit the supply in order to raise the price. As the market structure is competitive , one farmer cannot take the price or output decision. If he does so , he will incur losses due to loss of demand and will have to exit the market.