1. A new korean restaurant opens in a city. People are initially cautious about eating new food items, until an influential health report warns consumers against grilled meat and suggest that they increase their consumption of Korean foods. As a result, demand for Korean cuisine increases dramatically.
Assuming that the market for Korean food is perfectly competitive answer to the questions stated below-
a. In the story above, what should have happened to the short-run economic profit of the Korean restaurant as a result of the health report?
b. Assuming that demand remains high, what do you anticipate will happen to the number of korean restaurants in the city over the long run?
c. Would you predict that the first korean restaurant would be able to sustain positive economic profit over the long run? Explain.
d. Using one graph of the market as a whole and one graph of a representative firm’s cost curves, illustrate your answers to parts a – c. (draw diagram of a , b and c and label the diagram ).
e. Local steakhouses suffer from the popularity of Korean food and start incurring economic losses. What will happen to the number of steakhouses in town in the long run? Explain it thoroughly.
2. Explain under each of the situation, a firm working under a perfectly competitive market would keep on producing or shut down. Show using diagram and also explain the condition thoroughly.
P=14; AC=16; AVC=10 and Q=40
P=10; AC=10; AVC=8 and Q=20
3. Show using the same diagram for both monopoly and perfect competition market structure the consumer surplus of each market and how through rent seeking the income is distributed and the deadweight loss is experienced. Explain it thoroughly.