Question

Suppose that the shrimp industry is in long-run equilibrium at a price of $5 per pound of shrimp and a quantity of 300 million pounds per year. Suppose that WebMD claims that the bacteria found in shrimp will decrease your expected lifespan by 2 years. WebMD's claim will cause consumers to demand shrimp at every price. In the short run, firms will respond by producing more shrimp and earning positive profit Sh o illustrate these short-run effects of WebMD's claim. entering the industry producing less shrimp and running at a loss producing the same amount of shrimp and running at a loss producing the same amount of shrimp and earning positive profit exiting the industry Demand

Answer 1

a. The consumer's would demand less shrimps because of the changein taste and preferences of the consumers as it would decrease the lifespan.

b. Produce less shrimps and incur a loss. Since there is a fall in the demand for shrimps, so the producers would supply less.

c. This would shift the demand curve inwards to the left.

S Price P D D Quantity a' Q

d. Exiting the industry.

Instead of incurring losses, firms would rather exit the industry.

e. Each firm in the industry earns a zero profit. in the long run, firms would exit and the price to return to its initial level such that each firm earns zero profit.

f. Supply curve would also shift inwards to the left.

g. Horizontal.

Price Q' Q Quantity

Since the equilibrium price is restored, so the supply curve is horizontal.