Answered: Suppose that the seitan industry is…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter22: Getting Divisions To Work In The Firm’s Best Interests

Section: Chapter Questions

Problem 3MC

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Question

Suppose that the seitan industry is initially operating in long-run equilibrium at a price level of $5 per pound of seitan and quantity of 175 million pounds per year. Suppose a top medical journal publishes research that animal-alternative protein sources such as seitan could increase your expected lifespan by 5 years.

The publication is expected to cause consumers to demand (less/more) seitan at every price. In the short run, firms will respond by ( attached image).

Shift the demand curve, the supply curve, or both on the following graph to illustrate these short-run effects of the publication

In the long run, some firms will respond by (attached image) until (consumer demand returns to original level, each firm in the industry is once again earning zero profit, seitan populations grow large enough to support more firms, new technologies are discovered that lower costs)

Now Shift the demand curve, the supply curve, or both on another graph (same as the first) to illustrate both the short-run effects of the publication and the new long-run equilibrium after firms and consumers finish adjusting to the news.

The new equilibrium price and quantity suggest that the shape of the long-run supply curve in this industry is (upward sloping, downward sloping, horizontal, vertical) in the long run.

PRICE (Dollars per pound)
10
9
8
CO
5
A
♡
2
0
0 35
++
I
1
Supply
Demand
70 105 140 175 210 245
QUANTITY (Millions of pounds)
280 315 350
Demand
Supply

entering the industry
producing the same amount of seitan and earning positive profit
producing the same amount of seitan and running at a loss
producing more seitan and earning positive profit
exiting the industry
producing less seitan and running at a loss

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