Question

Suppose the market for MOP reached long-run equilibrium in 1913. This would have occurred as a result of _(i)_ due to oyster diving firms _(ii)_ the market. The market price in 1913 would be _(iii)_ than in 1912 and each oyster diving firm would be harvesting _(iv)_ MOP.

A. (i) an increase in supply, (ii) entering, (iii) lower, (iv) less
B. (i) an decrease in supply, (ii) exiting, (iii) higher, (iv) more
C. (i) an increase in supply, (ii) entering, (iii) lower, (iv) more
D. (i) an decrease in supply, (ii) entering, (iii) higher, (iv) less

Answer 1

The long-run equilibrium in the market for MOP in 1913 would have been reached through an increase in supply as more firms entered the market, leading to a lower market price and each firm harvesting less MOP. The correct option is a.

Step-by-step explanation:

If the market for MOP (Mother of Pearl) reached long-run equilibrium in 1913, this would have occurred as a result of several factors affecting supply and demand.

According to economic theory, as long as the original firm is earning positive economic profits, other firms will enter the market, increasing supply and driving down prices. This continued entry would occur until economic profits are zero.

This would imply an answer aligned with Option A: (i) an increase in supply, due to oyster diving firms (ii) entering the market, resulting in the market price in 1913 being (iii) lower than in 1912 and each oyster diving firm would be harvesting (iv) less MOP because of the increased competition and lower market price.