It Is Widely Known That the Rapidly Expanding Corn-Ethanol Industry

question 66

Essay

It is widely known that the rapidly expanding corn-ethanol industry is quickly increasing the price of corn on world markets. Given this, many farmers have begun to grow corn more intensively. For instance, some producers who currently pursue a corn-soybean rotation (planting corn one year and soybeans the next) might shift to a corn-corn-soybean rotation (planting corn two years in a row and then planting soybeans in the third). Continuous production of corn (planting corn every year on the same plot of land) is another possibility. Explain what impact this explosion in the market for corn may have on the market for soybeans. In particular, will those who produce soybeans exclusively be better off, worse off, or unaffected as a result of the increase in corn prices?

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Definitions:

Short Run

The period of time for which two conditions hold: The firm is operating under a fixed scale (fixed factor) of production, and firms can neither enter nor exit an industry.

Total Variable Costs

The sum of all costs that vary with the level of output or production.

Variable Costs

Costs that change in proportion to the level of production or business activity, such as raw materials and labor expenses.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance.