Monday, April 1, 2013

Catfish and the Competitive Firm

The New York Times has a nice article looking at the catfish industry here in the US.  Reading the article, we see many of the features and conclusions of the competitive firm and competitive industry model.  As feed costs have risen (i.e. marginal costs shift to the left), the competitive firm model states that the profit-maximizing amount of output will decrease and as the pond-bank price (market price) has decreased, again the competitive firm model states that the profit-maximizing output decreases.

In the long-run, decreases in market prices lead some firms to exit and increases in market prices lead to entry (here by catfish producers outside of the US).  Both have occurred recently.

Finally, we see that as the price of catfish falls, farmers in the South are switching from growing catfish to growing soybeans, which would be a conclusion from the competitive firm model of producer behavior.

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