The market for shrimp is perfectly competitive. This graph shows the market dema

Question

The market for shrimp is perfectly competitive. This graph shows the market demand and short-run supply curve. This supply curve shows the increase in output from existing shrimp producers when the price increases. In the short run, the number of shrimp boats is fixed. In the long run, the number of boats (all with identical costs) can adjust in response to changes in the profitability of shrimp fishing.

This graph shows the shrimp market in both short-run and long-run equilibrium. Now suppose the U.S. Surgeon General releases a report providing new evidence that eating shrimp once a week helps people live longer.

http://courses.aplia.com/problemsetassets/micro/Lemke_Perfect_Competition_II/6_image.gif

6.1. Adjust the graph below by dragging either the supply curve or the demand curve (or both or neither) to capture the short-run effect of this news on the market for shrimp.

6.2. In the short run, what happens to the market-clearing price for shrimp as a result of the Surgeon General's report?

A. Price increase
B. Price decrease


6.3. In the short run, how does each shrimp producer react to the increase in price?
A. Each producer shuts down.
B. Each producer increases its production of shrimp.
C. Each producer exits the industry.
D. Each producer decreases its production of shrimp.

6.4. How are each shrimp producer's short-run profits affected by the news?
A. There is not enough information to determine how profits are affected.
B. Profits increase.
C. Profits decrease.

6.5. In the graph below, show the short-run effect of the Surgeon General's report on the market for shrimp. Then, adjust this graph to show the long-run effect of the report. Recall that, in the long run, the number of shrimp boats can adjust. (Note: Assume this is a constant-cost industry, which means that the average cost curves do not shift as the industry expands or contracts.)

sorry there are many, but they are all the same questions..and because i'm not sure about the previous ones i can't solve the other ones!

Explanation / Answer

I'm not totally sure. But I think profits would increase- in the short term it would. It would help more if there are numbers for the marginal costs and the average total cost. Nonetheless, I believe that this news would make demand increase. So more people would buy and the company would make more revenue. Just as important, demand shifts to the right...and that causes prices to go higher. The difference between revenue and costs would be greater (therefore probably more profit). (that is because there would be more revenue from increased number of people buying along with a higher price). So I think profit would go up. NOt completely certain. Yes,the demand will decrease in the long run

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