PRICE OUTPUT RELATIONSHIP IN POTATO MARKET

Submitted by:
Submitted to: Mr. SUNEEL GUPTA Pallav Shukla Pawan Dua I Pawan Dua II Piyush Chaturvedi

The Potato is a starchy, tuberous crop from the perennial Solanum Tuberosum of the Solanaceae family (is known as the Nightshades). It is also called as King of Vegetables. The different varieties of Potatoes which are mostly in demand in Kanpur are 3797, DEVA PAHADI, CHIPSONA, SHRINATH AND SUGARFREE. Out of all the above varieties 3797 accounts for 80% of the total sales in Kanpur. Production period is from 20th Sep - 28th Oct. Storage period is starting from February and goes up to 15th of April. As per the government law the maximum storage period is for 8 months. Cost of storage is Rs.55 per quintal.

Potato market is known as PERFECTLY COMPETITIVE MARKET due to following characteristics

Potato market is known as PERFECTLY COMPETITIVE MARKET due to following characteristics :

Large numbers of buyers and sellers, all of whom are small relative to the market. Identical product. No barriers to new firms entering the market and exit from a market as well. An individual seller is unable to affect the market price.

Production of major Potato producing States during 200809

SERIAL NO. STATES PRODUCTION Million, tonnes 2008 11.8 0.95 7.5 PRODUCTION Million, tonnes 2009 13.5 1.4 5.26

1 2 3

Uttar Pradesh Punjab West Bengal

4
5

Bihar
others

4.11
0.64

3.5
0.34

All India

25

24

The intersection of market supply and market demand determines the EQUILIBRIUM PRICE of potato(U.P.) (Panel A)
Demand and Supply Curve
20 18 16 14 12 10 8 6 4 2 0 0 5 10 quantity( in million tonnes) 15 20

price

Demand Supply

Demand curve (Marginal Revenue curve) for individual seller in perfect competitive market ( U.P. Market ) (Panel B)
Demand curve = Marginal Revenue curve
11.3 11.2 11.1 11

Price

10.9 10.8 10.7 10.6 10.5 0 150 300 450 600 750 Quantity (in '00' kg.)

Demand

Panel A represents supply and demand curves for entire potato market in Utter Pradesh In which both are intersecting at a equilibrium price Rs.11 per kg. and quantity of 13.8 million tonnes. No individual seller can affect this price.

Panel B represents a demand curve for individual seller which is almost horizontal at level and he can sell as much potato as he chooses at the market price i.e. Rs.11 per kg.

Price and Output relationship in CHAKRPUR MANDI, Kanpur

Months Quantity of potato produced {in 00 kg.} 6000 6750 6488 -7500 6675 -7800 5250 6150 PRICE (PER 40 kg.) (in Rs) PRICE (PER Kg.) (in Rs.)

Nov-Dec Jan-Feb Mar-April May-June

200-230 150-200 220-260 320-380

5.38 4.37 6.00 8.75

July-Aug

5025 5700

400-450

10.63

The intersection of market supply and market demand determines the EQUILIBRIUM PRICE of potato (CHAKARPUR MANDI , KANPUR) (Panel C)
Demand and Supply curve
12 10 8

Price

6 4 2 0 0 2000 4000 Quantity (in '00' kg.) 6000 8000

Demand Supply

Demand curve (Marginal Revenue curve) for individual seller in CHAKARPUR MANDI, KANPUR (Panel D)
Demand curve = Marginal Revenue curve
7.15 7.1 7.05

Price

7 6.95 6.9 6.85 0 175 300 475 650 825 900 Quantity (in '00' kg)

Demand

Panel C represents supply and demand curves for entire potato market in Chakarpur Mandi In which both are intersecting at a equilibrium price Rs.7 per kg. and quantity of 633700 kg. No individual seller can affect this price.

Panel D represents a demand curve for individual seller which is almost horizontal at level and he can sell as much potato as he chooses at the market price i.e. Rs.7 per kg.

Price and Output relationship in BAMBA ROAD Market, Kanpur

Months Quantity of potato produced {in 00 kg.} PRICE (PER 40 kg.) (in Rs) PRICE (PER Kg.) (in Rs.)

Nov-Dec Jan-Feb Mar-April May-June July-Aug

830-840 740-756 870-882 700-714 615-630

250-260 235-240 300-320 430-440 550-560

6.5 6 8 11 14

The intersection of market supply and market demand determines the EQUILIBRIUM PRICE of potato (BAMBA ROAD, Kanpur) (Panel E)
Demand and Supply curve
16 14 12 10 8 6 4 2 0 0 200 400 600 800 1000 Quantity(in '00 kg)

Price

demand supply

Demand curve (Marginal Revenue curve) for individual seller in BAMBA MANDI, Kanpur (Panel F)

Demand curve = Marginal Revenue Curve

9.25 9.2 9.15 9.1 9.05 9 8.95 8.9 8.85 0 50 100 159 200 250 Quantity ( in '00'kg ) Demand

Price

Panel E represents supply and demand curves for entire potato market in Bamba Road In which both are intersecting at a equilibrium price Rs.9 per kg. and quantity of 76000 kg. No individual seller can affect this price.

Panel F represents a demand curve for individual seller which is almost horizontal at level and he can sell as much potato as he chooses at the market price i.e. Rs.9 per kg.

Determining the profit-maximizing level of output

No. of MP/BAG bags

TR

TC

PROFIT

AR

MR

MC

ATC

0 25 50 75 100 125 150

280 280 280 280 280 280 280

0 7000 14000 21000 28000 35000 42000

400 7000 10500 13125 16668 21002 26252

-400 0 3500 7875 11332 13999 15748 280 280 280 280 280 280 280 280 280 280 280 280 264 140 105 142 173 210 280 210 175 167 168 175

175
200

280
280

49000
56000

34128
44708

14872
11292

280
280

280
280

315
423

195
224

Determining the are area of maximizing profit

Determining the profit- maxmizing level of output

450 400 350 300 250 200 150 100 50 0 0 50 100 150 200 250 Quantity in bags

Market price

market price/per bag marginal revenue marginal cost average total cost

The profit maximizing level of output is 160 bags = 6400 kg. it is also the point where marginal revenue equal marginal cost (MR=MC).

As potato market is a perfectly competitive market price here equal marginal revenue so we can restate MR=MC=P=280. Relationship between total profit and average total cost is: PROFIT = (PRICE - AVERAGE TOTAL COST)*QUANTITY For above chart, Profit = (P- ATC)*Q = (280-180)*160 = Rs.16000 (approx.) Here maximum profit is 16000 which an individual seller will earn by producing 6400 kg. Producing more than 6400 kg will reduce his profits because after this marginal cost increases more than the marginal revenue

Price variation in potato market from the year 2007-08 to 2008-09

Months
PRICE IN YEAR 2007-08 PRICE IN YEAR 2008-09

NOV-DEC

6 5.50 6.30 7 7.50

5.38 4.37 6 8.75 10.63

JAN-FEB

MAR-APRL

MAY-JUNE

JULY- AUG

On the basis Graph Price variation in potato market from the year 2007-08 to 2008-09

PRICE VARIATION FROM 07-08 TO 08-09

12 10

PRICE

8 6 4 2 0 NOVDEC JAN-FEB MARAPRL MONTH MAYJUNE JULYAUG PRICE (07-08) PRICE (08-09)

Factors affecting Price of Potato

Potato price tends to firm up during the planting period and ease down the harvesting period. Area under cultivation in the growing areas and the weather conditions. Fuel price and transportation charges from one place to another. Potato growers and traders hoard the commodity before selling in expectation of better prices.

ENTRY AND EXIT OF FIRMS IN POTATO MARKET

In potato market after analyzing the entire year cycle of price and output relationship we can conclude that this market neither has high profit nor loss.
So as huge production in a particular year leads to high margin at profit to sellers, because when few peoples are involved in potato business definitely profit will be high and distributed among them as depicted in graph drawn below. CONCLUSION

In this market profit margin is not very high, it lies between to 5%-8%. In every two years new firms enter the market due to large production and high profits. Further, with the entry of new firms profit decreases due to which few firms leave the market.