The cashew industry is perfectly competitive and until now each of the identical firms in the industry have been earning zero economic profits while selling q1 units of output each (for a combined industry-wide total of Q1 units) at a market equilibrium price of P1 per unit. An unexpected increase in the demand for cashews raises the market equilibrium price to P2, which creates a situation in which P2 exceeds MC at q1 units of output. a. If the firms continued producing q1 units each, would their combined output of cashews be too little, too much, or just right to achieve allocative efficiency? multiple choice 1 Just right Too much Too little b. In the long run, what will happen to the supply of cashews and the price of cashews? multiple choice
The cashew industry is
a. If the firms continued producing q1 units each, would their combined output of cashews be too little, too much, or just right to achieve
multiple choice 1
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Just right
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Too much
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Too little
b. In the long run, what will happen to the supply of cashews and the price of cashews?
multiple choice 2
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The industry’s supply of cashews will be less than Q1 and the price of cashews will be less than P1.
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The industry’s supply of cashews will exceed Q1 and the price of cashews will equal P1.
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The industry's supply of cashews will exceed Q1 and the price of cashews will equal P2.
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The industry’s supply of cashews will equal Q1 and the price of cashews will equal P2.
c. Use a supply-and-demand diagram to show how that response will change the combined amount of
Instructions: Use the tool 'Surplus1' to identify the initial surplus in the graph on the left, which illustrates the initial situation before demand increases in the cashew market. Click on 'Surplus1' and then click anywhere on the graph. Click and drag the endpoints of the triangle to show the total of consumer surplus and producer surplus at the original price and quantity. Next, use the tool 'Surplus2' in the graph on the right to identify the long-run surplus after the changes in market demand and supply. Use the same process as before to show the total of consumer surplus and producer surplus in long-run equilibrium.
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Instructions: Use the tool 'Surplus1' to identify the initial surplus in the graph on the left, which illustrates the initial situation before demand increases in the cashew market. Click on 'Surplus1' and then click anywhere on the graph. Click and drag the endpoints of the triangle to show the total of consumer surplus and producer surplus at the original price and quantity. Next, use the tool 'Surplus2' in the graph on the right to identify the long-run surplus after the changes in market demand and supply. Use the same process as before to show the total of consumer surplus and producer surplus in long-run equilibrium.
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