Blood and Turnips

I was told the other day that 'you can't squeeze blood from a turnip.' Well let us just say for the sake of argument that you can, and that this type of turnip blood is so beneficial to the human body that it cures HIV and AIDS after being in the blood stream for two weeks. Now lets just say the a company called REsrch initially developed the process to extract the blood for the vegie, but decides not to produce anything. That is until after a few docters discover its benefits to the human body. The Docters then go to REsrch and say that they would be willing to pay $100 per unit of blood obtained. Now the production chart for REsrch looks very grim because the marginal cost grows very quickly the more units that are produced.

Units Total Revenue Total Cost Marginal Cost Marginal Revenue
1 100 10 10 90
2 200 60 50 140
3 300 120 60 180
4 400 220 100 180
5 500 480 260 20
6 600 690 210 -90
7 700 900 210 -200

Since REsrch wants to squeeze all the profit out of the turnips that they can (pun intended), they decide to produce about 3.5 units per hour because that is where their marginal cost equals marginal revenue. This goes on for a couple of weeks until a disaster strikes. A group of Religious Zealots and AIDS promoters decide that this is not what humanity needs. The Zealots say that God is punishing people, and the AIDS promoters are shouting 'FREEDOM OF CHOICE' so they both decide to attack TRnip, the farm that produces turnips for REsrch. This attack results in a loss of three quarter's of TRnip's crop for the year (only three quaters because the police were called in, but they responded a bit sluggish). Anyway, this loss of crop production results in a drastic decrease in the supply of turnips to REsrch. This drives the cost of turnips up drastically to the point where REsrch will need to charge about $350 per unit of blood to keep the same level of out put. Because of this, REsrch goes to the docters and ask if they can charge more. The Docters reply that they can only pay $350 total per hour for the turnip blood. Because of this, REsrch has a marginal cost that is greater than the marginal revenue to produce 3.5 units per hour, and they have to reduce their output to only one unit of blood per hour. This is where the new marginal cost equals marginal revenue.

The next year, the attack on TRnip was a complete success which caused REsrch to shutdown in the short run and hope that the police will be able to guard TRnip next year.