Question

• Eggs from hens housed in small cages cost about $0.40 per dozen to produce on the farm and another $0.20 per dozen to move to market the eggs (clean, package and deliver) to the retailers.
• Eggs from hens housed in large cages from cost $0.50 per dozen to produce and the same $0.20 to market the eggs (clean, package and deliver) to the retailers.
• Eggs from cage-free housing cost $0.70 per dozen to produce and the same $0.20 to market the eggs (clean, package and deliver) to the retailers.

1. The US market is about 8 billion dozens of eggs. Assume 75% come from hens housed in small cages, 10% come from hens housed in large cages and 15% come from hens housed in cage free barns. Assume the retailer margin is $0.50 for all types of eggs.​​​​​​

a. What is the total farm cost of each type of egg? Give me a number in millions of $.

b. What is the cost to market each type of egg? Give me a number in millions of $.

c. What is the total retail margin of each type of egg? Give me a number in millions of $.

d. What is the weighted average price of retail eggs?

e. What is the total farm cost of eggs”

f. What is the total retail revenue of eggs?

g. What is the farm share of retail price of each type of egg?

2. Now assume that the retail margin is specified as 50% of the cost of the eggs to the retailers.

a. What is the retail price of each type of egg?

b. What is the retailer margin in dollar per dozen of each type of egg?

c. What is the total retail margin of each type of egg? Give me a number in millions of $.

d. What is the weighted average price of retail eggs?

e. What is the total farm cost of eggs”

f. What is the total retail revenue of eggs?

g. What is the farm share of each type of egg?

3. Assume that the retail demand elasticity for each type of egg is -0.2. Assume that because price of corn falls the farm costs fall by $0.10 for each type of egg. Use the $0.50 retail margin to answer the following.

a. What is the new retail price of each type of egg from the price of corn falling.

b. By how much in % terms did the retail price of each type of egg fall?

c. What is the change in the quantity purchased of each type of egg? (I want a number in dozens.)

d. What is the percentage change in the quantity of each type of egg?

4. Re-answer questions in 3, using a retail margin of 50%.

5. Now assume a new law requires all eggs be from eggs in cage free housing. Use the $0.50 retail margin, other data and the demand elasticity above.

a. What is the change for all eggs in average price, total quantity and total revenue from your answer in question 1?

b. How does farm costs rise, in total, for this change in the law? In millions of $.

c. How much does retail margin rise for this change in the law? In millions of $.

d. Does the farm share change? By how much?

6. Now assume a new law requires all eggs be from eggs in cage free housing. Use the 50% retail margin, other data and the demand elasticity above.

a. What is the change for all eggs in average price, total quantity and total revenue from your answer in question 2?

b. How does farm costs rise, in total, for this change in the law? In millions of $.

c. How much does retail margin rise for this change in the law? In millions of $.

d. Does the farm share change? By how much?

Answer 1

The solution of this problem would be......