Quote:
Originally Posted by jasonkchapman
What does that have to do with the price of potato chips in Peoria? Price is only closely related to variations in cost when there is competition.
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Nothing, but the cost of production of potatoes has EVERYTHING to do with the price of potato chips in Peoria. Just like the cost of production has everything to do with the cost of product. The problem here is that the producer is not passing on cost savings to the consumer due to lack of competition in the market space. That doesn't change the fact the cost of production is significantly reduced. Also, your example is flawed because the model is not identical because it's not a physical good.