Question

Suppose that the tuna industry is in long-run equilibrium at a price of $5 per can of tuna and a quantity of 350 million cans per year. Suppose that WebMD claims that a protein found in tuna will increase your expected life span by 2 years.
WebMD's claim will cause consumers to demand ............. tuna at every price. In the short-run, firms will respond by .............
Draw a diagram with the demand and/or supply curve to illustrate these short-run effects of WebMD's claim.
In the long-run, some firms will respond by ............. and .............
Illustrate both the short-run effects of WebMD's claim and the new long-run equilibrium after firms and consumers finish adjusting to the news by drawing a diagram with the demand and/or supply curve.
The new equilibrium price and quantity suggest that the shape of the long-run supply curve in this industry is ............. in the long-run.

Answer 1

Answer:

More; increasing supply and earning profit; entering the market; reducing the profit to zero; horizontal.

Explanation:

The claim by WebMD that the protein in tuna would lead to 2 Years increase in life expectancy would cause the demand to increase at every price.  The demand curve will consequently shift to right.

As a result the firms in short run will supply more and enjoy profits.

Since the firms were facing long run equilibrium and were enjoying zero profit, an increase in price will cause profit to firms.

Since in the short run firms can not enter or exit they will continue producing.  

In the long run attracted by the profit earned by existing firms, the new firms will enter the market till all the firms are having zero profits.

In the tuna industry the new firms will start production, so the industry supply will increase causing a rightward shift in the supply curve.

In the long run the shape of the supply curve of the industry will be horizontal.