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In a fishing village famous for its cuttlefish, there are many firms producing dried cuttlefish. The cuttlefish are identical and each firm has only a small market share with no control over the price. Hence the dried cuttlefish market can be considered as perfectly competitive.
(a) Initially all the producers are earning a normal profit. Discuss this situation with a suitable dried cuttlefish market and a representative firm diagrams.
(b) There is a well-reputed medical report suggesting that eating dried cuttlefish may cause cancer. Explain the effect of this report on the dried cuttlefish market and a representative firm in the short run equilibrium. Support your answers with suitable market and firm diagrams.
(c) What happen to the dried cuttlefish market and the firms in the long run? Explain with ?suitable dried cuttlefish market and a representative firm diagrams.
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