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Mexican tortillas Analysis

Mexican tortillas Analysis - It’s in the best interest of...

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Kocher 1 ECO112 21 February 2007 Mexicans Hard Hit by Corn Shortage Low income Mexican families are feeling the effect of increased demand for corn. Demand for corn has risen globally, partially due to the United States’ increased ethanol production. The increased demand caused tortilla prices to rise from 73 cents per kilogram to 90 cents per kilogram. Gruma S.A. is one of a few firms who monopolize the corn and tortilla industries by limiting the supply of corn as an effort to keep prices high. Currently, Mexicans are forces to spend a sixth of their daily salary of eighteen dollars to provide their family with the country’s basic food, the tortilla. President Calderon’s administration plans to help its citizens by investigating antitrust issues associated with the monopolistic firms who control the corn and tortilla industries. Only a few firms control the production of tortillas.
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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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Mexican tortillas Analysis - It’s in the best interest of...

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