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Suppose that the tuna industry is in long-run equilibrium at a price of $5 per can of tuna and a quantity of 300 million cans per year
Suppose that the tuna industry is in long-run equilibrium at a price of $5 per can of tuna and a quantity of 300 million cans per year. Suppose that WebMD claims that a protein found in tuna will increase your expected life span by 3 years.
(1) WebMD's claim will cause consumers to demand more or less tuna at every price?
(2) In the short run, firms will respond by:
A. Producing the same amount of tuna and earning positive profit.
B. Exiting the industry.
C. Producing the same amount of tuna and running at a loss.
D. Producing more tuna and earning positive profit.
E. Producing less tuna and running at a loss.
F. Entering the industry.
Expert Solution
1) WebMD's claim will cause consumers to demand more tuna at every prices, since consumers will perceive tuna fish as healthy. The demand curve will shift to the right, resulting in increase in market price of tuna.
2) Choice D is right. In the short tun, firms will increase their production as a response to the increase in market price of tuna. Firms will start making positive economic profits.
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