Makattack, hi.All I want to know is are phosphate prices going...

Makattack, hi.

All I want to know is are phosphate prices going to go up or not? It is the only thing that matters. If they are going down, MAK will have to go to about 25 cents, and if they are going up MAK will have to go over $1.

On any connection between DAP and rock phosphate prices, one argument goes like this: Marginal revenue increases when the DAP price rises (MR moves to MR') which means a higher DAP output level than quantity Q is now required to maximise profits since the marginal cost is now below the MR' line so producing more DAP up to quantity Q' will increase profits. Unless the DAP producer has loads of rock phosphate in stock, if he wants to produce a higher quantity of DAP he will thus have to buy more rock phosphate, which should push up the RP price. (I agree with you there is a link between the two in this case).



However, after the rock phosphate price has risen the marginal cost curve MC then moves to MC', and you can see the DAP producer then needs to produce less DAP and cut back production from Q' to Q (to optimise profits), thus requiring him to buy less rock phosphate in future (Now I don't agree with you that DAP price rises cause RP price rises: the effect, as described in the first case, was only a temporary one then?).



In short, I am sure the reality is more complicated than just saying DAP price rises result in rock phosphate price rises (your arguement, and Mr Drummond's with his cake analogy?). (I have only tried to use economic theory to make sense of the short-run situation, and have probably even then not done it right: the long run situation where new capital is invested and a production operation is expanded is too complicated for me, so I haven't bothered with that).