Joint Supply

Joint Supply

Joint Supply, the relationship between two (or more) products such that changes in the supply of one similarly affect the supply of the other(s), e.g. beef and bides, wool and mutton, gas and coke, petrol and oils. Joint supply can produce complex interrelationships between the demands for and the supplies and prices of different commodities. For example, an increase in the demand for carcass meat which raises its price and produces larger output will necessarily increase the supply of hides and other animal by-products; and if the demand for them remains unchanged, the increase In supply will cause their prices to fall. The general tendency is for the prices of products in joint supply to move in opposite directions.

For producers, joint supply raises problems of allocating production costs between the joint products. Where 'jointness' is complete, i.e. where increased outputs of one commodity are rigidly geared to increased outputs of the other(s), it is impossible to separate costs. If the two products are sold in separate markets a producer will aim at the output of the two which will yield the largest difference between the total costs of producing them and the sum of the revenues from their sale. Usually, however, the degree of 'jointness' is not rigid. It may be possible, while keeping total cost constant, to vary the output of one commodity at the expense of the other and thus to obtain a ratio of the 'additional' or 'marginal' cost of one in terms of the other. The most profitable combination of the two commodities for a given cost outlay would then be that at which this ratio was equal to the ratio between the selling prices. Thus it is possible to arrive at a combination of outputs at which profits are maximized even though total costs of production cannot be divided between two commodities if producing one always involves producing some of the other.

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