UGA AAEC 3980 - A local agribusiness enterprise has employed

A local agribusiness enterprise has employed a consultant to estimate its supply curve for a new organic cotton seed and to estimate the demand faced for this seed in its local marketplace. The consultant has determined the following:

Demand: Q = 1200 ? P

Supply: Q = 150 + 2P

1. Given these two estimates, solve for the market equilibrium price and quantity.

2. Now plot the individual supply and demand curves together for price levels from $100 through $600 in increments of $50 (i.e., $50, $100, $150, etc.). Is the market equilibrium the same on your graph as calculated in Question 1?

3. This organic cotton seed is often chosen for its heat tolerance. What happens to the demand curve for this organic cotton seed if meteorologists are predicting higher temperatures throughout the upcoming growing season?

4. Given the original demand price–quantity relationships, calculate the elasticity of demand when:

(a) Prices increase from $250 to $300

(b) Prices increase from $500 to $550

(c) Based on your results, is this organic cotton seed elastic, unit elastic or inelastic?

5. Given the original market equilibrium, what would happen to this agribusiness if a market price of $400 were set for this seed? How will it impact total revenues. Is it a good idea to set the price at $400? Explain. Use a graph if you believe this will aid in explaining your answer.