Suppose that the market for eggs is initially in long-run equilibrium. One day, enterprising and profit-hungry egg farmer Atkins has the inspiration to fit his laying hens with rose-colored contact lenses. His inspiration is true genius-overnight his egg production rises and his costs fall.
a. Will farmer Atkins be able to leverage his inspiration into greater profit in the short run? Why?
b. Farmer Atkin's right-hand man, Abner, accidentally leaks news of the boss' inspiration at the local bar and grill. The next thing Farmer Atkins knows, he's being interviewed by Brian Williams for the NBC evening news. What short-run adjustments do you expect competing egg farmers to make as a result of this broadcast? What will happen to the profits of egg farms?
c. In the long run, what will happen to the price of eggs? What will happen to the profits of egg producers (including those of Farmer Atkins)?
d. Explain how, in the long run, competition coupled with the quest for profits ends up making producers better off only for a little while, but consumers better off forever.