Margins Revenue Costs & Profits Along Value Chains Flashcards
What is the Concept of Margins in value Chain?
- When product exchanges hands, a new price is determined, along the chain.
- Each firm focuses on costs & revenue (P X Q) while agreeing on the price which leads to profit.
- This difference in prices at each level of the chain leads to margins along the chain.
- All this action is to provide time, place, form and possession utility to the final consumer
What is the Marketing Margin or Farm Retail Spread?
Marketing Margin is the difference between farm price and retail price OR
Marketing Margin is the difference between the ultimate cost to the consumer & price paid to the producer OR
Marketing Margin is the consumer dollar that goes to all the firms that make the product available from farm gate to retail shelf
Marketing Margin = Consumer $ - Farmer $ (for produce)
What does the Marketing margin or farm retail Spread represent?
Marketing Margin or Farm-Retail Spread is
composed of both costs & profits.
Marketing Margin or Farm-Retail Spread represents payments, including profits made & costs incurred, for all marketing functions performed in assembling, processing, transporting, and retailing food to the final consumer.
What does Profit equate to?
Profit = Revenue – Cost Q2
Economic Profit (π) (loss) is the difference between total revenue and total cost at a given
level of output.
II= TR-TC
Total Revenue (TR) is the quantity of the product
(Q) sold time price (P).
TR = PxQ
What is the Total Cost(TC) and Average Total Cost (ATC) ?
Total Cost (TC) is the sum of total fixed and total
variable costs at each level of output.
TC = TVC+ TFC Average Total Cost (ATC) is the sum of total
costs divided by output.
ATC = TC/ Output
What is meant by Efficient Marketing?
Efficient marketing is the maximization of input-output ratio. Input is resources (costs) to perform marketing functions & Output includes time, form, place and possession utilities (benefits) to satisfy consumers.
What is Operational/ Technical efficiency?
Operational / Technical efficiency is cost reduction without affecting output side of the efficiency ratio.
What is Price Efficiency?
Price efficiency is efficient resource allocation and coordination along entire food production & marketing process with consumer directives. Competition plays a key role in price efficiency.
What are the three factors for a steady rise in the food Marketing Bill?
- Increase in population increases quantity of food marketed and raises food marketing bill
- Increasing costs of food marketing inputs especially labour energy
- Increasing consumer desires for additional food marketing services
What do rising Marketing Costs do?
Rising marketing costs typically raise the food marketing margin after a time lag which varies by products
Specific effect of a rising food marketing margin on consumer’s and farmer’s prices, depend on the relative elasticities of demand and supply.
What happens in the Short Run?
In the Short Run the consumer demand curve is more elastic than the farm supply curve, and the increase in marketing cost is felt primarily by farmers in the form of lower prices.
What happens in the Long Run?
In the long run, as the farm supply curve becomes more elastic, the rising marketing costs are passed on to the consumers.
What is the Division of Consumer Dollar ?
Division of consumer dollar is determined by the forces of competition and power leverage between farm & marketing sector.
What are Increasing Marketing Margins?
Increasing marketing margins are the result of consumers demanding more processing, services & year-round availability of quality food.
Consumer Demand & Cost Inflation are key to what?
Consumer demand & cost inflation are key to increasing margins and the prices that consumers pay. Rising labour, transportation, packaging and energy costs are major factors that influence price.
