Question:
Hi, I’m lost on this. Please help!
The United States is one of the largest producers of corn in the world. This, in part, is due to the subsidies that the federal and local governments give to the production of corn. Currently, the two largest subsidies offered to producers are the Price Loss Coverage (PLC) program and the Agricultural Risk Coverage (ARC) program. The PLC program establishes a price floor for corn sold by farmers while the ARC establishes a revenue floor for corn sold by farmers. (More information about the programs can be found in the link below.)
Using the information above, how will the following costs of production be affected?
Fixed Cost, Variable Costs, Total Cost, and Marginal Cost (Hint: Only two of the above will be changed by the programs)
Using the concepts of supply and demand as well as price floors, explain the intended purpose of the federal government’s subsidies on corn in the USA.
How do the programs affect the supply and demand curves?
Overall, do consumers end up paying more or less for corn products due to the policy?
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