Econ 2001

Farmers Stick Neck Out and Raise Alpacas
Alpacas were once a curiosity seen virtually only in a zoo. Times have changed. They are now being farmed for their wool. In 1990 there were 1,330 registered alpacas; in July 2000 there were 29,856. the number of owners has expanded from 146 in 1991 to 2,919 today. Alpacas are "easy keepers', being well-mannered and requiring minimal food, water, shelter, and care. Their hardiness results from their ancestry in the Andes mountains. They live 15 to 25 years.
 Alpaca fleeces are silky, durable, insulative, and water-resistant. They may be used
to make sweaters, for example. Fleece sells for $2 to $8 an ounce, depending on color and quality. Each alpaca produces five to eight pounds of fleece a year. A sweater requires about a pound of wool. It may sell for $400 although the yarn may cost only $40 and the labor $100.

Since alpacas reproduce at a slow rate and importing is tightly restricted, some herd
owners breed alpacas for resale. Females yield $12,500 to $40,000, while herd sires
have sold for as much as $165,000. Stud fees can be $2,000 to $5,000 for prize bulls.  Some farmers are vertically integrated - they breed alpacas, farm their wool, and make alpaca clothes.

Source: Glenn Collins, "Soft, Gentle, Cute, Lucrative and New on the Farm," The New York Times, August 11, 2000.


1. Draw a graph showing growth in the alpaca market from 1990 to 2000.
2. If a sweater producer sells an alpaca wool sweater for $400 and the yarn and labor used to produce the sweater are $40 and $100 respectively, what is the normal profit of this sweater producer?
3. What if a new technology to produce sweaters was invented that only used $30 of wool and $80 of labor, how would the market for alpaca sweaters change show using a graph.
4. Finally, what if it is found that alpaca wool mittens are all the rage and that the price of mittens (using only half as much yarn as a sweater and the same amount of labor) is $400 a pair.  What would that do to the market for alpaca sweaters?  Show using a graph.