(i) Imagine the market for vitamin B. Assume that firms in this market are currently making normal profits, and they have a positively sloped marginal cost (MC) curve.

Let's consider the impact in the short runof new research that finds vitamin B helps to reduce the risk of strokes and heart disease. The impact of this on the market for vitamin B will be

Answer = an increase in demand

a decrease in demand

an increase in supply

a decrease in supply,

which will lead to

Answeran = increase in the market price

a decrease in the market price

no change in the market price.

This will result in existing firms earning Answer = normal profits (or no rents)

above-normal profits (or earning rents)

below-normal profits (or negative rents) in the short run.

In the long run, we expect Answer = firms to enter the market

consumers to exit the market

consumers to enter the market

firms to exit the market, which will result in Answer = an increase in market demand

a decrease in market demand

a decrease in market supply

an increase in market supply. This process will end when Answer = price equals average cost

price falls below marginal cost

the firm reaches its highest isoprofit curve

and firms in the market are making

Answer = above-normal profits

below-normal profits

normal profits.

If a firm is earning normal profits, it means that

Answer = the firm's premises is already exceeding its next best alternative use

the firm can do better by putting their premises to an alternative use

the firm cannot do better by putting their premises to an alternative use.

(ii) Supply in the short run is Answer = more elastic than

the same as

less elastic

than supply in the long run, which means that the supply curve in the short run is Answer = the same as

steeper than

flatter than

the supply curve in the long run.

Consider the market for luxury yachts depicted on the following graph.