Agricultural Economics Department
Date of this Version
March 2002
Abstract
Economists like to use production agriculture as an example of a perfectly competitive industry. The assumption is made that the decisions of an individual firm will not impact the general market price level. However, if a large number of individual firms all have similar cost structures and all make the same economically justified decision to alter production, then collectively this decision will impact the market price level. The result is that the individually correct production decision that was made to increase profits is collectively the incorrect decision, and profits are decreased rather than increased. This is the micro-macro paradox in agriculture.
Comments
Published in Cornhusker Economics, 03/20/2002. Produced by the Cooperative Extension, Institute of Agriculture and Natural Resources, Department of Agricultural Economics, University of Nebraska–Lincoln.
http://www.agecon.unl.edu/Cornhuskereconomics.html