The Internet is affecting holiday shipping. In years past, the busiest shipping

Question

The Internet is affecting holiday shipping. In years past, the busiest shipping period was Thanksgiving week. Now as people have become comfortable with e-commerce, they purchase later in the year and are more likely to have gifts shipped (rather than purchasing locally). FedEx, along with Amazon and other e-commerce firms, hires extra workers during this period, and many regular workers log substantial overtime hours. a. Assuming prior to this period the industry was in long-run equilibrium, are a firm's marginal and average costs likely to rise or fall with this extra business? O A. No, the increase in demand will increase the number of firms such that the market price, marginal cost, and average cost will be unchanged in the short run. Increased demand will increase the market price: thus, each firm wil operate at a higher marginal cost, but average cost will still be at its minimum point. ° C. No, a competitive firm produces at the point where minimum average cost equals marginal cost regardless of changes in demand D. Yes, increased demand wil increase the market pnce; thus, each firm will operate at a point above and to the right of minimum average cost in the short run. b. What are the effects on the number of firms, equilibrium price and output, and profits of such a seasonal shift in demand for e-retailers in both the short run and the long run. Explain your reasoning. O A. In the short-run, the equilibrium price and the number of firms will increase and firms will earn zero economic profits, and in the long-run, the number of firms will be unchanged and firms will earn zero economic profit. B. n he short-run he eau librium price and he quantity each rm produces wil ncrease and firms will earn positive economic pronts, and in he long-run the number o firms will be unchanged and firms wil earn zero O C. In the short-run, the equilibrium price and the number of firms will increase and firms will earn positive economic profits, and in the long-run, the number of firms will be unchanged and firms will earn zero economic D. In the short run, the equilibrium price and the quantity each fim produces wil increase and firms will earn positive economic profits, and in the long run, the number of firms will increase and firms will earn zero economic profit. profit economic profit.

Explanation / Answer

a)

the answer is option D because in the short run firm will not be able to respond quickly, therefore, there will be no entry in the short run. Increased demand will lead to higher prices given the fixed supply. thus the correct option is D.

b) the answer is option D because in the short run increase in prices there will be an increase in the profit, this will attract more new firms, in the long run, this will increase the supply and bring down the profitss to zero level.

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