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Unformatted text preview: It’s in the best interest of these companies to limit the supply of tortillas and keep the price relatively high. Tortillas are an elastic good, meaning that a change in price will cause a large change in quantity supplied. Furthermore, even if the firm would lower the prices by a small amount, their total revenue will increase. A company like Gruma S.A. has an incentive to keep prices up as an attempt to keep total revenue up while keeping costs at a manageable level. Figure 1 illustrates how tortillas are an elastic good on a market diagram. Figure 2 is a production possibilities curve comparing the production of tortillas and ethanol. The combined output has shifted down the curve toward ethanol to account for an increased demand for ethanol production from corn. Kocher 2...
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- Fall '08
- Maize, Corn Shortage Low, Gruma S.A.