Price Output Relationship in Potato Market

7/29/2019 Price Output Relationship in Potato Market

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PRICE OUTPUT RELATIONSHIP IN POTATO

MARKET

Submitted by:Pallav Shukla

Pawan Dua I

Pawan Dua II

Piyush Chaturvedi

Submitted to: -

Mr. SUNEEL GUPTA


2/22

The Potato is a starchy, tuberous crop from the perennial

Solanum Tuberosum of the Solanaceae family (is known as

the Nightshades). It is also called as King of Vegetables.

The different varieties of Potatoes which are mostly in demand in

Kanpur are 3797, DEVA PAHADI, CHIPSONA, SHRINATH AND

SUGARFREE.

Out of all the above varieties 3797 accounts for 80% of the totalsales in Kanpur.

Production period is from 20th Sep - 28th Oct.

Storage period is starting from February and goes up to 15th of April.

As per the government law the maximum storage period is for 8

months.

Cost of storage is Rs.55 per quintal.


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Potato market is known as PERFECTLY COMPETITIVE

MARKET due to following characteristics :

Potato market is known as PERFECTLY COMPETITIVE MARKET due to

following characteristics :

Large numbers of buyers and sellers, all of whom are small relative to the

market.

Identical product.

No barriers to new firms entering the market and exit from a market as well.

An individual seller is unable to affect the market price.


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Production of major Potato producing States during 2008-

09

SERIAL NO. STATES PRODUCTION

Million, tonnes

2008

PRODUCTION

Million, tonnes

2009

1 Uttar Pradesh 11.8 13.5

2 Punjab 0.95 1.4

3 West Bengal 7.5 5.26

4 Bihar 4.11 3.5

5 others 0.64 0.34

All India 25 24


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The intersection of market supply and market demand

determines the EQUILIBRIUM PRICE of potato(U.P.)

(Panel A)

Demand and Supply Curve

0

2

4

6

8

10

12

14

16

18

20

0 5 10 15 20

quantity( in million tonnes)

price Demand

Supply


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Demand curve (Marginal Revenue curve) for individual

seller in perfect competitive market ( U.P. Market )

(Panel B)

Demand curve = Marginal Revenue curve

10.5

10.6

10.7

10.8

10.9

11

11.1

11.2

11.3

0 150 300 450 600 750

Quantity (in '00' kg.)

Price

Demand


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Panel A represents supply and demand curves for entire potato market in Utter Pradesh

In which both are intersecting at a equilibrium price Rs.11 per kg. and quantity of 13.8

million tonnes. No individual seller can affect this price.

Panel B represents a demand curve for individual seller which is almost horizontal at

level and he can sell as much potato as he chooses at the market price i.e. Rs.11

per kg.


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Price and Output relationship in CHAKRPUR MANDI,

Kanpur

Months Quantity of

potato

produced

{in 00 kg.}

PRICE

(PER 40 kg.)

(in Rs)

PRICE

(PER Kg.)

(in Rs.)

Nov-Dec 6000 6750 200-230 5.38

Jan-Feb 6488 -7500 150-200 4.37

Mar-April 6675 -7800 220-260 6.00

May-June 5250 6150 320-380 8.75

July-Aug 5025 5700 400-450 10.63


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determines the EQUILIBRIUM PRICE of potato

(CHAKARPUR MANDI , KANPUR)

(Panel C)

Demand and Supply curve

0

2

4

6

8

10

12

0 2000 4000 6000 8000

Quantity (in '00' kg.)

Price Demand

Supply


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seller in CHAKARPUR MANDI, KANPUR

(Panel D)

Demand curve = Marginal Revenue curve

6.85

6.9

6.95

7

7.05

7.1

7.15

0 175 300 475 650 825 900Quantity (in '00' kg)

Price

Demand


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Panel C represents supply and demand curves for entire potato market in Chakarpur

Mandi In which both are intersecting at a equilibrium price Rs.7 per kg. and

quantity of 633700 kg. No individual seller can affect this price.

Panel D represents a demand curve for individual seller which is almost horizontal at

level and he can sell as much potato as he chooses at the market price i.e. Rs.7 per

kg.


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Price and Output relationship in BAMBA ROAD Market,

Kanpur

Months Quantity ofpotato

produced

{in 00 kg.}

PRICE(PER 40 kg.)

(in Rs)

PRICE(PER Kg.)

(in Rs.)

Nov-Dec 830-840 250-260 6.5

Jan-Feb 740-756 235-240 6

Mar-April 870-882 300-320 8

May-June 700-714 430-440 11

July-Aug 615-630 550-560 14


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determines the EQUILIBRIUM PRICE of potato

(BAMBA ROAD, Kanpur)

(Panel E)

Demand and Supply curve

0

2

4

6

8

10

12

14

16

0 200 400 600 800 1000

Quantity(in '00 kg)

Price demand

supply


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seller in BAMBA MANDI, Kanpur

(Panel F)

Demand curve = Marginal Revenue Curve

8.85

8.9

8.95

9

9.05

9.19.15

9.2

9.25

0 50 100 159 200 250

Quantity ( in '00'kg )

Price

Demand


15/22

Panel E represents supply and demand curves for entire potato market in Bamba Road

In which both are intersecting at a equilibrium price Rs.9 per kg. and quantity of

76000 kg. No individual seller can affect this price.

Panel F represents a demand curve for individual seller which is almost horizontal at

level and he can sell as much potato as he chooses at the market price i.e. Rs.9 per

kg.


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Determining the profit-maximizing level of output

No. of MP/BAG TR TC PROFIT AR MR MC ATC

bags

0 280 0 400 -400

25 280 7000 7000 0 280 280 264 28050 280 14000 10500 3500 280 280 140 210

75 280 21000 13125 7875 280 280 105 175

100 280 28000 16668 11332 280 280 142 167

125 280 35000 21002 13999 280 280 173 168

150 280 42000 26252 15748 280 280 210 175

175 280 49000 34128 14872 280 280 315 195

200 280 56000 44708 11292 280 280 423 224


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Determining the are area of maximizing profit

Determining the profit- maxmizing level of output

0

50

100

150

200

250

300

350

400

450

0 50 100 150 200 250

Quantity in bags

Marketprice market price/per bag

marginal revenue

marginal cost

average total cost


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The profit maximizing level of output is 160 bags = 6400 kg. it is also

the point where marginal revenue equal marginal cost (MR=MC).

As potato market is a perfectly competitive market price here equal

marginal revenue so we can restate MR=MC=P=280.

Relationship between total profit and average total cost is:

PROFIT = (PRICE - AVERAGE TOTAL COST)*QUANTITYFor above chart, Profit = (P- ATC)*Q

= (280-180)*160

= Rs.16000 (approx.)

Here maximum profit is 16000 which an individual seller will earn by

producing 6400 kg. Producing more than 6400 kg will reduce his profits

because after this marginal cost increases more than the marginal

revenue


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Price variation in potato market from the year 2007-08 to

2008-09

Months PRICE IN YEAR 2007-08 PRICE IN YEAR 2008-09

NOV-DEC6 5.38

JAN-FEB 5.50 4.37

MAR-APRL6.30 6

MAY-JUNE7 8.75

JULY- AUG7.50 10.63


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On the basis Graph Price variation in potato market from

the year 2007-08 to 2008-09

PRICE VARIATION FROM 07-08 TO 08-09

0

2

4

6

8

10

12

NOV-

DEC

JAN-FEB MAR-

APRL

MAY-

JUNE

JULY-

AUG

MONTH

PRICE PRICE (07-08)

PRICE (08-09)


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Factors affecting Price of Potato

Potato price tends to firm up during the planting period and ease down the

harvesting period.

Area under cultivation in the growing areas and the weather conditions.

Fuel price and transportation charges from one place to another.

Potato growers and traders hoard the commodity before selling in

expectation of better prices.


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ENTRY AND EXIT OF FIRMS IN POTATO MARKET

In potato market after analyzing the entire year cycle of price and output relationship

we can conclude that this market neither has high profit nor loss.

So as huge production in a particular year leads to high margin at profit to sellers,

because when few peoples are involved in potato business definitely profit will behigh and distributed among them as depicted in graph drawn below.

CONCLUSION

In this market profit margin is not very high, it lies between to 5%-8%.

In every two years new firms enter the market due to large production and highprofits.

Further, with the entry of new firms profit decreases due to which few firms leave themarket.

Documents

Price Output Relationship in Potato Market