Question

Suppose that the shrimp industry is in long-run equilibrium at a price of $5 per pound of shrimp and a quantity of 350 million pounds per year. Suppose that WebMD claims that a protein found in shrimp will increase your expected life span by 5 years.

WebMD's claim will cause consumers to demand _______ shrimp at every price. In the short run, firms will respond by _______ .

Shift the demand curve, the supply curve, or both on the following diagram to illustrate these short-run effects of WebMD's claim.

In the long run, some firms will respond by _______  until _______ .

Shift the demand curve, the supply curve, or both on the following diagram to illustrate both the short-run effects of WebMD's claim and the new long-run equilibrium after firms and consumers finish adjusting to the news.

The new equilibrium price and quantity suggest that the shape of the long-run supply curve in this industry is _______  in the long run.

Answer 1

Suppose there is a shrimp industry which is in long run equilibrium price of S5 per pound of shrimp and quantity of 350 million pounds per year It is stated that eating shrimp will increase the expected life span by 5 years As a result, this will cause consumers to demand more shrimp at every price by shifting the demand curve rightwards So, in the short run, firms respond by producing more shrimp and earning positive profits Since the firms earn profits in the short run, the firm will enter the industry till it starts earning normal profits This is done by increasing the supply curve till it reaches the initial equilibrium price So, in the long run, some firms will respond by entering the industry until each firm in the industry is once again earning zero profits The new equilibrium price and quantity shows that shape of long run supply curve is horizontal in the long run. The following figures are showing the effect in the short run and long run. In the short run, Since eating shrimps is good for health, the consumer will consume more of it, this will shift the demand curve to the right as shown below:

In the long run, the firms wl enter the market. This will shift the supply curve to the right till the firms start earning zero profits as shown below ON 40 210 280 30 4 400 60 630 Blank 1: more shrimp Blank 2: producing more shrimp and earning profits Blank 3:entering the industry 4 each firm is earning zero profits Blank 5: horizontal

Answer 2