Authors libby rittenberg 779

demand for cranberries raises the price to $6 per pound in a
matter of a few weeks.
a. Illustrate the increase in demand in the market and in the case
of a typical firm in the short run.
b. Illustrate what happens in the long run in this industry.
Assuming that the cost per unit of production remains
unchanged throughout, what will the new price be?
c. Now suppose that the industry is permitted to organize all
firms into a producers’ cooperative that maximizes profits.
Starting with the solution that you had in (b), illustrate the
impact of this change on industry price and output.
Again, consider the market for cranberries. The industry
is perfectly competitive and the price of cranberries is $4 per
pound. Suppose a reduction in the cost of obtaining water
reduces the variable and average total cost by $1 per pound
at all output levels.
.
a. Illustrate graphically the impact of the change in the short run.
Will the price fall by $1? Why or why not?
b. Now show the impact of the $1 reduction in cost in the long
run. Who benefits from the reduction in cost?
c. Assume again that the producers in the industry are
permitted to band together in a cooperative that maximizes
profits. Now show the short run impact of the cost reduction
on the price and output of cranberries.
d. Now show the long run impact of the change. Who benefits
from the reduction in cost?

Attributed to Libby Rittenberg and Timothy Tregarthen
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