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Joint Commodities In Fixed Rations

  Joint Commodities in Fixed Rations

     When joint commodities are manufactured in definite rations, they should be regarded as a single manufacture package and all costs are acquired on them as a single package.

      As commodity are manufactured as a package there is no any other rational way in which the costs can be distributed to individual commodities of package. For instance, costs incurred on raising cattle can not be computed as to how cost is acquired on ham and how much on hide as they are collectively, their demands are independent.

      The below diagrams explain the ascertainment of rate and productivity of joint commodities in fixed proportion. Let us presume that the two joint commodities in fixed rations are commodities X and commodities Y.

     In diagram (1) Dx and Dy are the demand curves accordingly. Aggregate marginal revenue curve MRt of the two commodities in diagram (1) is procured by vertical summation of the marginal revenue curves MRx and MRy of the two commodities.

      MC is marginal cost of one more unit of the commodity package and is represented to be enhancing as the volume manufactured of commodity package enhances.

    It will be seen from diagram (1) that marginal cost MC intersects aggregate marginal revenue curve MRt at point E and thus, the industry will be optimising profits by manufacturing the units of productivity Vo of the package of joint commodities.

      Prices of the two commodities will be ascertained by their respective demand curves. It will be seen from diagram (1) that with productivity Vo of the package of joint commodities, symmetry price of commodity X will be fixed at Rx and of commodity Y will be fixed at Ry.

      It will be pragmatic from diagram (2) that marginal revenues MRx and MRy of the two commodities at the profit optimising level of productivity Vo of package of joint commodities are positive.

     Thus, the symmetry volumes of the both commodities would be sold out and there will be no surplus manufacture of any one of them. Nevertheless, the symmetry level of productivity of joint commodities may take place where marginal revenue MR of one commodity may be negative.

       This is explained in the diagram (2) where symmetry level of productivity Vo of the commodity of the joint commodities is accomplished to the right of point Vy productivity where marginal revenue of commodity Y is negative.

      This entails that in symmetry surplus of productivity of commodity Y parities VyVo will be manufactured as a part of the package of joint commodities. This means that if this surplus manufacture of commodity Y is sold in the market, the industry’s revenue will decline as it will depress its rate too much to capitulate negative marginal revenue.

      This difficulty crops for the reason that the two commodities are collectively manufactured. As such it will be a wise decision on the part of a rational manager not to sell the surplus manufacture of commodity Y and sell only OVy of commodity Y at rate Ry in the market.

Rating of commodities with Independent demands

      Aggregate revenue from commodity B will be optimum by selling OVy volume of it, the surplus productivity VyVo of commodity Y must be withheld from the market and may be destroyed.

     The commodities produced by an industry with interdependent demands may be interrelated either as surrogates or complements. For instance, power windows, car stereo mechanism, anti locking brakes are complementary to the cars produced and sold by the car producing industries.

     When the price of a car hikes and as a consequent its volume demanded reduces the demand for these other complementary commodities such as car complementary mechanism systems will also reduce.

     The proper rating decision by the manager of a multi commodity industry needs that demand inter-dependence among the commodities manufactured by it must be taken into account. Instead of setting rate of each commodity independently, the outcome of rate of each commodity on the demand for the other commodities manufactured by an industry must be considered.

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