QUESTION 2 Use the scenario below to answer the question. On Isla de la Mula Salada,...

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QUESTION 2 Use the scenario below to answer the question. On Isla de la Mula Salada, Barney's Bait Shop sells fish bait to fishermen visiting the island. There are tons of other bait shops on the island and it is costless for bait shops to enter or exit the market. Additionally, because all the bait is sourced locally Barney's Bait Shop sells the same bait as all of the other bait shops on the dock (the pink tailed minnow). There are many bait shops on the island and bait shops are able to sell as much bait as they want at the going market price. Consequently, no individual firm can influence the market price. The MARKET supply and demand is shown in the right side of the figure below with the original demand curve for the bait being indicated as "Demando". The cost structure for an individual firm is also shown in the left side of the Figure. Assume now that the FDA puts out a study encouraging people to eat more fish. Consequently, people on the island of Isla de la Mula Salada start fishing more and this requires them purchase more bait. As such the market demand curve for bait shifts to Demand1 and causes the market price increase from P1 to P2. Price/cost P₂ MC ATC 91.92 AVC Price Quantity of Fish (individual firm) Supply Q1 Q₂ Assuming that firms are now earning a positive economic profit, what do we expect to happen to the total number of firms and the market supply curve? O Number of firms in the industry increases, supply curve does not shift O Number of firms in the industry increases, supply curve shifts right Number of firms in the industry decreases, supply curve shifts left Number of firms in the industry decreases, supply curve does not shift Demand, Demand, Quantity of Fish (Total Market) QUESTION 2 Use the scenario below to answer the question. On Isla de la Mula Salada, Barney's Bait Shop sells fish bait to fishermen visiting the island. There are tons of other bait shops on the island and it is costless for bait shops to enter or exit the market. Additionally, because all the bait is sourced locally Barney's Bait Shop sells the same bait as all of the other bait shops on the dock (the pink tailed minnow). There are many bait shops on the island and bait shops are able to sell as much bait as they want at the going market price. Consequently, no individual firm can influence the market price. The MARKET supply and demand is shown in the right side of the figure below with the original demand curve for the bait being indicated as "Demando". The cost structure for an individual firm is also shown in the left side of the Figure. Assume now that the FDA puts out a study encouraging people to eat more fish. Consequently, people on the island of Isla de la Mula Salada start fishing more and this requires them purchase more bait. As such the market demand curve for bait shifts to Demand1 and causes the market price increase from P1 to P2. Price/cost P₂ MC ATC 91.92 AVC Price Quantity of Fish (individual firm) Supply Q1 Q₂ Assuming that firms are now earning a positive economic profit, what do we expect to happen to the total number of firms and the market supply curve? O Number of firms in the industry increases, supply curve does not shift O Number of firms in the industry increases, supply curve shifts right Number of firms in the industry decreases, supply curve shifts left Number of firms in the industry decreases, supply curve does not shift Demand, Demand, Quantity of Fish (Total Market)

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Correct option is B Number of firms in the industry increases supply curve shif... View the full answer