Question

Suppose the supply function for avocados is Q=58+15p−20pf, where pf is the price of fertilizer per lb. If the price of fertilizer rises by $1.20 per lb., how will this affect the supply curve for avocados? If the price of fertilizer rises by $1.20 per lb., then the supply of avocados will change by units at each price. (Enter your response as a whole number and include a minus sign if necessary.) Using the line drawing tool, show how an increase in the price of fertilizer affects the avocado supply curve. Label this new supply curve 'S2.' Carefully follow the instructions above, and only draw the required object.

Answer 1

Q=58+15p−20pf

It is clear from the supply function that price of fertilizer is negatively Related with the supply of avocados. This should not be difficult to understand because fertilizer goes in the production of avocados. If the price of fertilizers increases, it means cost of production of avocado is increase and hence, supply should fall.

Let Pf1 be the initial price of fertilizer and Pf2 be the final price. We are given that:

When the price of fertilizer was Pf1, then let the supply of avocado be Q1. When price of fertilizer rises to Pf2, let the supply of avocado be Q2.

Change in quantity supplied of avocado when the price of fertilizer is increased by $1.20 is:

Therefore, supply of avocado is reduced by 24 units. Figure 1 show how an increase in the price of fertilizer affects the avocado supply curve, supply curve shifts left from S1 to S2.