It is 2017, and you work for a prestigious management consultant firm whose client is a large agribusiness company that is considering acquiring an ownership stake in several U.S. yellow perch farming operations. (The yellow perch is a fresh fish found in the U.S. and raised commercially for sale as food.) As a member of the consulting team working on this project, you have been assigned the task of understanding why the U.S. farm-raised perch industry has evolved as it has over the last 6 years.
Between 2010-2013, the farm-raised yellow perch market was stable. However, in 2013 an unexpected exogenous shock occurred that affected prices and quantities in the market. You don't know much about the details of the industry, and since the industry is not covered extensively in the press, it is hard to find articles on the Web about what happened to the industry. From talking to the client, you learn that the shock might have had something to do with either a change in the market demand for yellow perch or a change in the price of corn (which affects the price of perch feed). But you do not know for sure, nor do you know whether the shock was a permanent change or merely a temporary one. However, you do have data (obtained from the client), shown in the table below, on yellow perch prices, market demand, quantity supplied, and the number of producers. The data pertains to 2010-2013, 2014 (within one year of the shock), and 2016 (three years after the shock). You also know (from the client) that yellow perch farms are virtually identical, with U-shaped long-run average cost curves. You also learn from the client that the minimum efficient scale of a typical yellow perch farm occurs at a rate of production of about 1,000 pounds per month (and this is unaffected by changes in the prices of key inputs such as feed or labor).
(a) Based on the data in the table, what type of shock most likely explains the evolution of the yellow perch farming industry from 2010-2013 to 2016?

(b) How would your answer change if the number of active yellow perch farms in 2016 was 100?

(c) How would your answer change if the data in the table looked like this?

Transcribed Image Text:

2014: within 6 months of 2016: 3 years 2010-2013 the shock after shock Market price of yellow perch Total quantity yellow perch demanded in the United States Quantity of yellow perch supplied by a typical yellow perch farm Number of active yellow perch farms $3.00 per pound 100,000 pounds per month 1,000 pounds per month 100 $4.00 per pound 20,000 pounds per month 1,200 pounds per month 100 $3.00 per pound 150,000 pounds 1,000 pounds per month 150 2014: within 6 months of 2016: 3 years 2010-2013 the shock after shock Market price of yellow perch Total quantity yellow perch demanded in the United States Quantity of yellow perch supplied by a typical yellow perch farm Number of active yellow perch farms $3.00 per pound 100,000 pounds per month 1,000 pounds per month 100 $3.50 per pound 90,000 pounds $4.00 per pound 80,000 pounds 900 pounds per month 100 1,000 pounds per month 80