Perfect Competition - Shrimp Market (Check My Work)?

Question

The market for shrimp is perfectly competitive. The graph below shows the market demand and short-run supply curve. In the short run, the number of shrimp boats (firms) is fixed. In the long run, the number of boats can adjust in response to changes in the profitability of shrimp fishing. The market is currently in both short-run and long-run equilibrium. Assume that individual firms' cost structures don't depend on the number of firms in the market.

Now suppose the U.S. Surgeon General releases a report providing new evidence that eating shrimp once a week helps people live longer.

Graph: http://courses.aplia.com/problemsetassets/textbooks/arnold_micro_8e/ch20_II/10_image.gif

Question: How are each shrimp producer's short-run profits affected by the news?

A. Profits decrease.

B. Profits increase.

C. There is not enough information to determine how profits are affected.

My Thoughts: It's between B and C. I mean, we're not given total cost...so it's C?

Answer 1

Think about what happens to demand for shrimps.

Answer 2

I'm not totally sure.  But I think profits would increase- in the short term it would.  It would help more if there are numbers for the marginal costs and the average total cost.  Nonetheless, I believe that this news would make demand increase.  So more people would buy and the company would make more revenue.  Just as important, demand shifts to the right...and that causes prices to go higher.  The difference between revenue and costs would be greater (therefore probably more profit).  (that is because there would be more revenue from increased number of people buying along with a higher price).  So I think profit would go up.  NOt completely certain.