Discarding Low Quality Produce with an Elastic Demand

Abstract

The first inclination of economists is to believe that culling produce with an elastic demand will decrease total returns. This ignores the effect that culling has on quality. If the increase in quality causes price to increase by a sufficient amount, total returns increase. Furthermore, there is an optimal culling rate with respect to maximum returns. This rate is a function of the increase in price due to culling and the elasticity of demand. Since the firm faces a more elastic demand than the industry, its optimal rate of culling is less than the industry's. By using their monopoly power in setting culling rates, institutions such as marketing orders have the potential for increasing returns to industries facing elastic demand curves.

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