Question

Suppose an increase in the popularity of apple cider increases the demand for apples. How will the increase in the demand for apples affect Grande’s economic profit in the short run? Explain.

A) Increase in profit due to higher demand.
B) Decrease in profit due to higher demand.
C) No impact on profit in the short run.
D) Profit unaffected by changes in apple demand.

Answer 1

In the short run, an increase in the demand for apples due to the popularity of apple cider will likely increase Grande's economic profit. However, b. in the long run, competition may reduce their profit.

Step-by-step explanation:

b. In the short run, an increase in the demand for apples due to the popularity of apple cider will likely increase Grande's economic profit.

When the demand for apples increases, Grande can charge a higher price for their apples, resulting in higher revenue. Since the cost of producing apples remains relatively constant in the short run, the increase in revenue will lead to higher profit for Grande.

For example, if Grande was initially selling apples for $1 each and the increased demand allows them to sell apples for $1.50 each, they will earn more profit per apple sold. However, it's important to note that in the long run, as more firms enter the market to take advantage of the increased demand, competition will drive prices back down and potentially reduce Grande's profit.