= 27d567bc2d48d9f40e9ccc20ea370b15)
erratim comments on How much does consumption affect production? - Less Wrong
You are viewing a comment permalink. View the original post to see all comments and the full post content.
= 783df68a0f980790206b9ea87794c5b6)
Loading…= b715d02e85f7b3b4ae65ca3d3e450868)
Subscribe to RSS Feed
Powered by Reddit
= f037147d6e6c911a85753b9abdedda8d)
You are viewing a comment permalink. View the original post to see all comments and the full post content.
Comments (60)
I mean "horizontal" rather than "vertical". In that sense, a flat supply curve means a constant price, not a constant quantity.
I agree, but this is the type of pressure on Cost that I have no expectation of being in any particular direction. As a result, on expectation these perturbations average to zero, and the argument holds. It would be interesting if we had a reason to expect that Cost would go up or down depending on the amount of production. These are the issues my last section in the original article was intended to address.
The received wisdom is that if the demand for chicken feed goes up, the cost and price will go up, if the demand goes down, the cost and price will go down.
If the received wisdom is that a larger chicken industry will increase the price of chicken feed, then my prior is that it's true in the short term, but not the long term. Chicken feed might be in finite supply, in which case Cost might grow with chicken industry size, but there are other reasons I can imagine Cost might shrink with increasing chicken industry size (listed in original article) and I don't have enough confidence about any of these factors to break my prior that Cost at industry size 2X is ~Cost at industry size X.
So what you are basically saying is that in the long run the price will be driven close to the lowest average price -- right?
Still not quite, as once you recognize that "perturbations" will happen, you need to engage in some risk management (zero mean does not imply zero volatility). In your scenario the chicken producer seems to be fine with the 50% chance of going bankrupt at the delivery time which isn't a good assumption to make.
Yes; in the long term the producers that have higher-than-average Costs will be driven out of the market.
I'm modeling risk management as part of the typical Cost of doing business, along with things like interest rates, opportunity costs of capital, chicken feed, other inputs, etc. Separating out risk management as a stand-alone variable doesn't seem to change anything.