The Industry and Ethanol Producing Firms Essay Example | Topics and Well Written Essays - 250 words

The Industry and Ethanol Producing Firms - Essay Example Due to equilibrium in demand-supply of maze and production of ethanol, and subsidies, farmers producing maze were getting good prices till 2014. However, with withdrawal of subsidy in 2016, firms getting subsidy lost some of the incentives that is bound to affect their profitability. Since the demand for gasoline is always going to be there and is ever increasing with no substitute product available, as such there shouldn’t be any external business threat to firms producing ethanol. However, to sustain their profitability, they would be looking to reduce production costs or pass on the increase in prices to their consumers. At the same time, by reducing their production cost they can be more competitive in the market. Thus in the new scenario, only those ethanol producing firm would be profitable who would be able to keep their costs down and be more competitive in pricing. Another scenario for the firms can be to operate at lower per unit profit but doing volume sales to incr ease their gross revenue. For an individual firm, lower ethanol costs will mean higher sales. The industry is likely to witness the exit of small ethanol producing firms. It is assumed that gasoline production won’t be affected due to the withdrawal of subsidy on ethanol production. Therefore, the demand for ethanol would be hardly affected. As such, there won’t be any reduction in the production of ethanol. There are a large number of farmers producing maze and there are no barriers to selling maze to any of the ethanol-producing firms. Further, there is no big entry cost involved in maze production farming.