<p>There are certainly situations where an increase in the price of B will cause a change in the supply of A. As an example, whey (A) is a leftover from cheese (B) production. If the price of cheese goes up, then the increase in the production of cheese will result in an increase in the production of whey.</p>
<p>Unlike the currently accepted answer, the connection is not due to a constraint on the inputs available. Instead it is a result of the goods being produced jointly.</p>

CC BY-SA 4.0
2023-10-11T18:22:18.717Z
2023-10-11T18:22:18.717Z
smcc
<p>I cannot comment, but the answer above appears to be wrong.</p>
<p>Firms maximize profits according to the marginal principle. That is, firm would produce something as long as P &gt; MC and stop when P = MC. This principle should be applied across each good separately. If the price of B goes up (provided nothing happens to the MC curves for both A and B) then the firm should respond by producing more of B by hiring more factors of production (assuming that the factor markets are competitive). The exact shapes of production function is of secondary importance to this question (that could matter but it does not address the question asked.)</p>

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2023-10-09T22:50:39.303Z
This is not correct. You are assuming there is infinite amount of labor and capital out there. As mentioned in my answer that is not necessarily the case. If there is only 10 units of capital out there and firm has production function Q=K then production will cease at Q=10 even if at Q=10 MR> MC
1muflon1
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2023-10-09T23:05:17.703Z
"You are assuming there is infinite amount of labor and capital out there". This is an implication of competitive factor markets, which is the most reasonable (and very common) assumption to address the question above. Your assumption of not being able to hire any additional factors of production is way more unrealistic. You also impose specific forms of production function to answer a very general price theory question, which is very misleading.
IPII
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2023-10-09T23:36:59.683Z
1. Empirically not all factor markets are competitive such as labor market, and factor shortages can occur.  There isn't anything unrealistic about firm not being able to fill position. In fact that is extremely common especially for more specialized positions in many countries. 2. I am not sure if you ever read graduate level text on microeconomic theory, but there is a plethora of models that deviate from assuming competitive factor markets.  3. General question requires general answer.  4. Those production functions are just examples illustrating the answer depends on parameters of problem
1muflon1
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2023-10-09T23:57:01.857Z
Your 3. is exactly my point, give a general answer before going to a “grad-level text” specific models. Those are the extensions. The question is about a firm producing 2 goods, and you are bringing in the inability to hire a worker with specific skills. 

Ps I have read enough grad-level texts having a phd in economics and teaching for years.
IPII
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2023-10-10T04:44:04.583Z
@ilyywa The "reasonable assumption" to make about the company in the question is that they have an infinite amount of labor? "*we cannot really say what will happen*" seems like a pretty general answer to me.
Giskard
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2023-10-10T09:18:10.843Z
@ilyywa if you have PhD in economics and teach you should know that perfect competition model is not general model but specific model a more general model of competition is for example Cournot Model with N firms since depending on N the model can accommodate perfect competition, monopolistic competition, oligopoly, duopoly and monopoly… that’s what is meant by general model in literature… look I don’t mind you giving answer using model of perfect competition, it’s often good first approximation, claiming the more advanced answer is wrong when this is clearly not just some homework problem but
1muflon1
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2023-10-10T09:18:26.247Z
General question is uncalled for and in addition you should be clear that your answer requires firms to be able always satisfy their demand for factors of production which at least in short run is difficult IRL
1muflon1
CC BY-SA 4.0
2023-10-09T22:03:08.943Z
2023-10-09T22:04:24.593Z
2023-10-09T22:04:24.593Z
IPII
<p>There is no clear answer, it depends on various factors such as constraints that firm faces and production function and so on.</p>
<p>For example, suppose we have two factors labor L and capital K. Firm has 100 units of both. Then suppose production function for product A is <span class="math-container">$A= \sqrt{K}$</span> and <span class="math-container">$B=\sqrt{L}$</span>.</p>
<p>In this case producing less of output A does not allow firm to produce more of output B and vice versa.</p>
<p>If A and B have production function given by <span class="math-container">$A= \sqrt{K}\sqrt{L}$</span> and  <span class="math-container">$B=K^{0.2}L^{0.7}$</span>, and if the firm hits its resource constraint of 100 units of capital and labor, then firm can only produce more of A if it produces less of B.</p>
<p>A priori we  cannot really say what will happen without first analyzing some particular scenario.</p>

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2023-10-09T20:28:14.953Z
2023-10-09T20:28:14.953Z
1muflon1
<p>Let's suppose there is a company that can produce two goods: A or B. The price of good B increases. This will result in an increase in the quantity supplied of good B, but does this result in a decrease in supply of good A? Does quantity supplied of good B affect the supply of good A?</p>

<microeconomics>
What happens to supply when a company can produce two different products
asdf
# What happens to supply when a company can produce two different products

(Asked by: username_0 on 2023-10-09)

Let's suppose there is a company that can produce two goods: A or B. The price of good B increases. This will result in an increase in the quantity supplied of good B, but does this result in a decrease in supply of good A? Does quantity supplied of good B affect the supply of good A?

**Tags:** microeconomics


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## 3 answers

### Answer by username_3 on 2023-10-09. Score: 2 | Accepted answer

There is no clear answer, it depends on various factors such as constraints that firm faces and production function and so on.

For example, suppose we have two factors labor L and capital K. Firm has 100 units of both. Then suppose production function for product A is $A= \sqrt{K}$ and $B=\sqrt{L}$.

In this case producing less of output A does not allow firm to produce more of output B and vice versa.

If A and B have production function given by $A= \sqrt{K}\sqrt{L}$ and $B=K^{0.2}L^{0.7}$, and if the firm hits its resource constraint of 100 units of capital and labor, then firm can only produce more of A if it produces less of B.

A priori we cannot really say what will happen without first analyzing some particular scenario.


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### Answer by username_1 on 2023-10-11. Score: 0

There are certainly situations where an increase in the price of B will cause a change in the supply of A. As an example, whey (A) is a leftover from cheese (B) production. If the price of cheese goes up, then the increase in the production of cheese will result in an increase in the production of whey.

Unlike the currently accepted answer, the connection is not due to a constraint on the inputs available. Instead it is a result of the goods being produced jointly.


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### Answer by username_2 on 2023-10-09. Score: 0

I cannot comment, but the answer above appears to be wrong.

Firms maximize profits according to the marginal principle. That is, firm would produce something as long as P > MC and stop when P = MC. This principle should be applied across each good separately. If the price of B goes up (provided nothing happens to the MC curves for both A and B) then the firm should respond by producing more of B by hiring more factors of production (assuming that the factor markets are competitive). The exact shapes of production function is of secondary importance to this question (that could matter but it does not address the question asked.)

> **Comments:**
> **username_3**: This is not correct. You are assuming there is infinite amount of labor and capital out there. As mentioned in my answer that is not necessarily the case. If there is only 10 units of capital out there and firm has production function Q=K then production will cease at Q=10 even if at Q=10 MR> MC  
> **username_2**: "You are assuming there is infinite amount of labor and capital out there". This is an implication of competitive factor markets, which is the most reasonable (and very common) assumption to address the question above. Your assumption of not being able to hire any additional factors of production is way more unrealistic. You also impose specific forms of production function to answer a very general price theory question, which is very misleading.  
> **username_3**: 1. Empirically not all factor markets are competitive such as labor market, and factor shortages can occur.  There isn't anything unrealistic about firm not being able to fill position. In fact that is extremely common especially for more specialized positions in many countries. 2. I am not sure if you ever read graduate level text on microeconomic theory, but there is a plethora of models that deviate from assuming competitive factor markets.  3. General question requires general answer.  4. Those production functions are just examples illustrating the answer depends on parameters of problem  
> **username_2**: Your 3. is exactly my point, give a general answer before going to a “grad-level text” specific models. Those are the extensions. The question is about a firm producing 2 goods, and you are bringing in the inability to hire a worker with specific skills.   Ps I have read enough grad-level texts having a phd in economics and teaching for years.  
> **username_4**: @ilyywa The "reasonable assumption" to make about the company in the question is that they have an infinite amount of labor? "*we cannot really say what will happen*" seems like a pretty general answer to me.  
> **username_3**: @ilyywa if you have PhD in economics and teach you should know that perfect competition model is not general model but specific model a more general model of competition is for example Cournot Model with N firms since depending on N the model can accommodate perfect competition, monopolistic competition, oligopoly, duopoly and monopoly… that’s what is meant by general model in literature… look I don’t mind you giving answer using model of perfect competition, it’s often good first approximation, claiming the more advanced answer is wrong when this is clearly not just some homework problem but  
> **username_3**: General question is uncalled for and in addition you should be clear that your answer requires firms to be able always satisfy their demand for factors of production which at least in short run is difficult IRL  

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