[idiotsecant]

In practice, this is not how it would work out - the farming entity is incentivized to produce the maximum profit - if you can make 50% more food and sell it for the same price, you will just make 50% more food. Even if you can make 50% more food and sell it for 80% of the price per unit you will still do that because it means more profit.

[bluGill]

You missed something important: demand is not elastic like that ( to some extent people will switch from beans to meat, but eventually you have enough to eat and won't buy more at any price). Thus as farming gets more productive someplace needs to stop growing food. We can allow a bit to go to waste, but eventually someone is going to realize that the price they can get for their crop isn't worth the cost for putting it in the ground and stop farming. Not sell out to a different farmer because no other farmer will invest in that land.

The above happens all the time. It doesn't happen on the most productive land, it happens on the marginal land.