2003 is $8 a half-gallon can and the equilibrium quantity is 8 million gallons a year. The technological change has not lowered the cost curves in the long run because the maple syrup industry must be characterized by external diseconomies so that as new firms enter, the costs of the firms increase and the cost curves shift (back) upward. As a result, the marginal cost curve and average cost curve in 2003 are the same so that the firms are earning a normal profit and entry no longer occurs. Firms that did not adopt the new technology exited the market. 14d. The invention of a great tasting artificial syrup decreases the demand for maple syrup. The demand curve shifts leftward, as illustrated in Figure 13.11 by the shift from D0 to D1. The equilibrium price falls to $4 a half gallon and the equilibrium quantity decreases to 6 million gallons a year. Figure 13.13 shows the effect on an individual producer. The firm’s marginal cost curve shifts downward from MR0 to MR1. This firm decreases its production from 4,000 gallons a year to 2,000 gallons a year. The firm incurs an economic loss because the price is less than average total cost. In the long run, the economic loss leads to some firms exiting the market. As firms exit, the supply of maple syrup decreases and the supply curve shifts leftward. The equilibrium price of maple syrup rises. Eventually enough firms exit so that the price rises to equal the firms’ average total cost. At this point, the firms earn a normal profit and exit ceases. 15. The markets your student choose likely are different than the markets discussed here. But the effects sketched here should be similar in your students’ answers. An example of a market that will expand is the market for DVDs. As more people own DVD players, the demand for DVDs increases. The firms producing DVDs earn an economic profit in the short run. But as time passes, more firms enter this market. The price of a DVD falls and in the long run, the firms producing DVDs earn a normal profit.
2003 is $8 a half-gallon can and the equilibrium quantity is 8 million gallons a year. The technological change has not lowered the cost curves in the long run because the maple syrup industry must be characterized by external diseconomies so that as new firms enter, the costs of the firms increase and the cost curves shift (back) upward. As a result, the marginal cost curve and average cost curve in 2003 are the same so that the firms are earning a normal profit and entry no longer occurs. Firms that did not adopt the new technology exited the market. 14d. The invention of a great tasting artificial syrup decreases the demand for maple syrup. The demand curve shifts leftward, as illustrated in Figure 13.11 by the shift from D0 to D1. The equilibrium price falls to $4 a half gallon and the equilibrium quantity decreases to 6 million gallons a year. Figure 13.13 shows the effect on an individual producer. The firm’s marginal cost curve shifts downward from MR0 to MR1. This firm decreases its production from 4,000 gallons a year to 2,000 gallons a year. The firm incurs an economic loss because the price is less than average total cost. In the long run, the economic loss leads to some firms exiting the market. As firms exit, the supply of maple syrup decreases and the supply curve shifts leftward. The equilibrium price of maple syrup rises. Eventually enough firms exit so that the price rises to equal the firms’ average total cost. At this point, the firms earn a normal profit and exit ceases. 15. The markets your student choose likely are different than the markets discussed here. But the effects sketched here should be similar in your students’ answers. An example of a market that will expand is the market for DVDs. As more people own DVD players, the demand for DVDs increases. The firms producing DVDs earn an economic profit in the short run. But as time passes, more firms enter this market. The price of a DVD falls and in the long run, the firms producing DVDs earn a normal profit.
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