Amul Cantillon

To solve the Cantillon, it is essential to identify the Landlords and Laborers in the given case. Also, the necessities and the luxuries need to be identified or assumed on the basis of the information. Since Mr. Shah owns the cows and other landowners have land to set up a production unit as well as the store to sell its products, hence it is safe to conclude that these two are the owners of the factors of production. Ms. Mittal, who works in the AMUL store, is a laborer. It can be safely assumed that Mr. Shah also owns labor to milk his cows. Owing to the lack of data, milk is assumed to be a necessities and cold coffee, chocolate milkshake and tub of ice-cream are assumed to luxuries.

The cantillon diagram shows the flow of resources. Mr. Shah supplies milk to AMUL for Rs. 500. Out of this Rs. 500, Mr. Shah pays a remuneration of Rs. 150 to the labor for mulching his cows. The remaining Rs. 350 is spent by him on the luxuries that he buys. The labor uses his Rs. 150 to buy the necessities (milk) from the AMUL store. AMUL uses this money for making factor payments i.e.  wages, rent, interests etc. These payments enable the landlords and laborers to purchase the desired luxuries and necessities. The flow continues henceforth.

Solving Cantillon:

Rent earned through production of necessities (tTN) = 50

Rent earned through production of luxuries (tTU) = 200

Wage Rate of labor producing luxuries (wLU) = 50

Wage Rate of labor producing necessities (wLN) =100

Total revenue is the price of the commodity multiplied by the amount produced. Total cost is the wages and rents paid to the labor and land employed in the production of the goods.

pNXN = wLN + tTN

        = 100 + 50

        = 150

pUXU = wLU + tTU

= 50 + 200

= 250

Hence, the values of pNXN and pUXU are same as what was assumed.