Again, consider the market for cranberries. The industry is perfectly competitive and the price of cranberries is $4 per pound. Suppose a reduction in the cost of obtaining water reduces the variable and average total cost by $1 per pound at all output levels.

1. Illustrate graphically the impact of the change in the short run. Will the price fall by $1? Why or why not?
2. Now show the impact of the $1 reduction in cost in the long run. Who benefits from the reduction in cost?
3. Assume again that the producers in the industry are permitted to band together in a cooperative that maximizes profits. Now show the short run impact of the cost reduction on the price and output of cranberries.
4. Now show the long run impact of the change. Who benefits from the reduction in cost?
5. Compare your responses to parts (b) and (d), and explain the difference, if any.