Question

Consider the market for turkey, which is a perfectly competitive market. The long-run equallibrium price is $3 per pound of turkey, and the long-run equillibrium quantity is 600 million pounds per years. Suppose the Surgeon General issues a report saying that eating turkey is bad for your health.

The Surgeon General's report will cause consumers to demand MORE/LESS turkey at every price. In the short run, firms will respond by 1. producing less turkey and running at a loss 2. producing the same amount of turkey and earning positive profit 3. producing the same amount of turkey and running at a loss 4. exiting the turkey industry 5. entering the turkey industry 6. producing more turkey and earning positive profit. Shift the supply curve, the demand curve, or both on the following diagram to illustrate these short-run effects of the Surgeon General's announcement.

In the long-run, some firms will respond by 1. exiting the turkey industry 2. producing more turkey and running at a loss 3. producing less turkey and earning positive profit 4. entering the turkey industry 5. producing less turkey and running at a loss 6. producing more turkey and earning positive profit. until 1. consumer demand returns to its original level 2. each firm in the industry is once again earning zero profit 3. new technologies are discovered that lower costs 4. turkey populations grow large enough to support more firms. Shift the supply curve, the demand curve, or both on the following diagram to illustrate both the short-run effects of the Surgeon General's announcement and the new long-run equillibrium after firms and consumers finish adjusting to the news.

Assuming the long-run and quantity are as you found in the previous problem, the turkey industry is 1. a constant-cost industry 2. and increasing-cost industry 3. a decreasing-cost industry between the initial long-run equillibrium quantity and the new long-run equillibrium quantity.

Answer 1