During the 1980s most of the global supply of lysine was produced by a Japanese company named Anjinomoto. Lysine is an essential amino acid that is an important livestock feed component. At this time, the US imported most of this global supply of lysine (more than 30,000 tons) to use in livestock feed at a price of $1.65 per pound. The global market for lysine, however, fundamentally changed in 1991 when US-based Archer Daniels Midland (ADM) began producing lysine; a move that doubled worldwide production capacity. Experts conjectured that the marginal cost of producing lysine was approximately $0.70 per pound. Despite ADM's entry into the lysine market, suppose demand remained constant at Q = 208 – 80P (in millions of pounds). Shortly after ADM began producing lysine, the worldwide price dropped to $0.70. By 1993, however, the price of lysine shot back up to $1.65. Give a plausible explanation for what might have happened in the lysine market. Support your answer with appropriate calculations. [You may use the fact that for a quadratic revenue function R(Q)=aQ²+bQ+c it holds that MR(Q)=2aQ+b.]

During the 1980s most of the global supply of lysine was produced by a Japanese company named Anjinomoto. Lysine is an essential amino acid that is an important livestock feed component. At this time, the US imported most of this global supply of lysine (more than 30,000 tons) to use in livestock feed at a price of $1.65 per pound. The global market for lysine, however, fundamentally changed in 1991 when US-based Archer Daniels Midland (ADM) began producing lysine; a move that doubled worldwide production capacity. Experts conjectured that the marginal cost of producing lysine was approximately $0.70 per pound. Despite ADM's entry into the lysine market, suppose demand remained constant at Q = 208 – 80P (in millions of pounds). Shortly after ADM began producing lysine, the worldwide price dropped to $0.70. By 1993, however, the price of lysine shot back up to $1.65. Give a plausible explanation for what might have happened in the lysine market. Support your answer with appropriate calculations. [You may use the fact that for a quadratic revenue function R(Q)=aQ²+bQ+c it holds that MR(Q)=2aQ+b.]

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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