How much does shipping cost from Brazil to the US?

Marginal cost in Microeconomics ?

• im desperately trying to figure this problem out in preparation for an exam in microeconomics. please help anyone??????? Ull be a savior Wall Street Journal, October 22, 2007 The cost of shipping raw materials across the world’s oceans has reached an all-time high, pushing up prices of grain, iron ore, coal, and other commodities. The average cost of renting a ship to carry raw materials from Brazil to China has nearly tripled since last year. In some cases, ocean shipping can be more expensive than the cargo itself. The trend may force manufacturers to pay more for the basic ingredients they need to make their products. The main reason commodity shipping rates are escalating: not enough ships. The shortage stems from the surging volume of global trade as growth explodes in China, India and other developing countries. 1. How do increased shipping costs affect the marginal cost of manufacturing? What will happen to prices of goods? 2. Assume that the shipping industry is perfectly competitive. What is the effect of high shipping rates on the shipping firms’ economic profits in the short run? What will happen to shipping rates, number of ships, and economic profits in the long run? Explain.

• Answer:

  1) marginal cost will increase because the marginal cost involves the 'overhead' that the firm pays to manufacture and ship a good-note transport costs have tripled year-to-date. This obviously effects the mkt price. as marginal costs increase, to maintain same profit margin the mkt price has to increase to maintain efficient 2) short run is that the ones that make less profit will either go out of business or will be bought out (merger/aqcuisition). R=PxQ therefore economic profit decreases because: marginal costs increase (including transport) and qty decreases (law of demand on price increase). In the long run most things are elastic alternative methods will be sought after OR the suppliers capital and other rates of production will adjust to demand and things will be efficient.