Solve the questions below

Question 1:

8. Short-run and long-run effects of a shift in demand Suppose that the perfectly competitive chicken industry is in long-run equilibrium at a price of $3 per kilogram of chicken and a quantity of 600 millicn kilograms per year. Suppose Health Canada issues a report saying that eating chicken is bad for your health. Health Canada's report will cause consumers to demand "% chicken at every price. In the short run, firms will respond by v Shift the supply curve, the demand curve, or both on the following diagram to iflustrate these short-run effects of Health Canada's announcement. Note: Select and drag one or both of the curves to the desired position. Curves will snap inte position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. O Suppl N > Demand = O o4 - S = Supply o o 8 I 82 | : 2 I pemand o 1 1 1T 1 1 1 0 f f ! } f ! 0 200 400 600 00 1000 1200 QUANTITY (Millions of kilograms) In the long run, some firms will respond by w until Shift the supply curve, the demand curve, or both on the following diagram to illustrate both the short-run effects of Health Canada's announcement and the new long-run equilibrium after firms and consumers finish adjusting to Health Canada's announcement. 6 O Supply Demand 5 Supply 3 PRICE (Dollars per kilogram) 2 Demand 200 400 600 800 1000 1200 QUANTITY (Millions of kilograms) Assuming the long-run price and quantity are as you found in the preceding problem, the chicken industry is7. Short-run supply and long-run equilibrium Consider the perfectly competitive market for titanium. Assume that, regardless of how many firms are in the industry, every firm in the industry is identical and faces the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves shown on the following graph. @ 100 + 90 + 70+ 60 -+ 50 + ATC COSTS (Dollars per kilogram ) 20 + 10 + MC QUANTITY (Thousands of kilograms) The following diagram shows the market demand for titanium. Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 20 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 30 firms. Finally, use the green points (triangle symbol) to piot the short-run industry supply curve when there are 40 firms. Note: Points will snap to the quantities of output. @ 100 -a- 0 4+ a0 4 Supply (20 firms) E 70 - o 5 2 &0 Supply (30 firms) 2 w 50 A o 3 g 4 Supply (40 firms) & r W T o 20 4 10 4 0 t + + + + t t t t i 123 250 373 500 823 750 873 1000 1123 1250 QUANTITY (Thousands of kilograms) If there were 20 firms in this market, the short-run equilibrium price of titanium would be per kilogram. At that price, firms in this industry would W Therefore, in the long run, firms would the titanium market. Because you know that perfectly competitive firms earn ' economic profit in the long run, you know the long-run equilibrium price must be per kilogram. From the graph, you can see that this means there will be "% firms operating in the titanium industry in long-run equilibrium. True or False: Each of the firms operating in this industry in the long run earns negative accounting profit. O True O False 6. Short-run equilibrium Consider a perfectly competitive market for wheat in Halifax. There are 60 firms in the industry, each of which has the cost curves shown on the following graph: (?) 100 90 MC 80 70 60 ATC 50 COST (Cents per bushel) 40 30 AVC 20 0 5 10 15 20 25 30 35 40 45 50 OUTPUT (Thousands of bushels)The following graph shows the market demand for wheat. Use the orange points (square symbol) to plot the short-run industry supply curve for the wheat industry. Specifically, place an orange point at the fowest point of the supply curve and another orange point at the highest point of the supply curve. (Note: You can disregard the portion of the supply curve that corresponds to prices where there is no output, since this is the industry supply curve. Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.) Then, place the biack point (pius symbol) on the graph to indicate the short-run equilibrium price and quantity in this market. (Note: Dashed drop lines will automatically extend to both axes.) @ 100 T Demand o w0 -+ w0 1 Supply Curve - g 70 + ? @ - - 3 &0 + Equilibrium T o m 50 [ ] swoo0 | || | 65.00 > [ ] w000 | || | If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firm's fixed cost is $520,000 per day. In other words, if it shuts down, the firm would suffer losses of $520,000 per day until its fixed costs end (such as the expiration of a building lease). This firm's shutdown pointthat is, the price below which it is optimal for the firm to shut downis W per purse. 3. Profit maximization in the cost curve diagram Suppose that the market for wind chimes is a perfectly competitive market. The following graph shows the daily cost curves of a firm operating in this market. @ 40 - B 4 m Profit or Loss 28+ 24 + PRICE (Dollars per wind chime] o 1 ATC 12 + \\ s 1 e AVC 4 4 s L o 2 4 G 8 10 12 14 16 18 20 QUANTITY (Thousands of wind chimes) In the short run, at a market price of $20 per wind chime, this firm will choese to produce ' wind chimes per day. On the preceding graph, use the blue rectangle (circle symbols) to shade the area representing the firm's profit or loss if the market price is $20 and the firm chooses to produce the quantity you already selected. Note: In the following question, you should enter a positive number in the numeric entry field. The area of this rectangle indicates that the firm's would be per day. 9. The long-run supply curve in different cost industries The following graph shows the market for orange juice. Initially, the market is in a long-run equilibrium. Suppose that a change in tastes resulted in a leftward shift in demand. On the following graph, shift the demand or supply curve to reflect this change in tastes. Then use the grey point (star symbol) to indicate the new short-run equilibrium. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. @ 10 O Short-Run Supply Demand O & Short-Run Supply % 4 Shart-Run Equilibrium Demand " PRICE {Dollars per litre) Long-Run Equilibrium o 0 2 4 6 3 10 Long-Run Supply QUANTITY (Thousands of litres) In the short run, firms will . In the long run, the supply curve will v On the preceding graph, show the shift in the supply curve and then use the purple point (diamond symbol) to indicate the resulting new long- run equilibrium. Comparing the two long-run equilibria on the graph, you can see that the orange juice market is an example of On the preceding graph, use the green line (diamond symbols) to plot the long-run market supply curve for orange juice