Suppose the market for lobsters is perfectly competitive. All producers have identical costs curves and the industry is currently in long run equilibrium with each producer producing at its minimum long run average total cost of $4/pound.
A) If langostinos are substitutes for lobsters and the price of langostinos decreases, what will happen in the market for lobsters in the short run? Discuss supply and demand, equilibrium price and quantity.
B) How will individual lobster producers respond to the change in price in the short run?
C) Explain whether there will be entry or exit from the lobster-producing industry in the short run.
D) Explain whether there will be entry or exit from the lobster-producing industry in the long run.
E) What will happen in the market for lobsters in the long run? Discuss supply and demand, equilibrium price and quantity.
F) How will individual lobster-producing firms respond to the entry or exit in the long run?
G) In the market as a whole, will the change in the equilibrium quantity be greater in the short run or the long run? Explain.
H) Will the change in output on the part of individual firms be greater in the short run or the long run? Explain.