Initially the beef and mutton markets are in equilibrium, then preferences shift away from beef and into mutton. If you are a cattle rancher, the best profit-maximizing strategy is to
A) shut down.
B) increase output so as to increase your market share.
C) shift some of your ranching capacity into cattle raising.
D) decrease output so as to minimize short run losses.

Question

Quizplus · Accepted Answer

When preferences shift away from beef and into mutton, demand for beef decreases, leading to a potential surplus at the current price and equilibrium quantity. For a cattle rancher, decreasing output can help align supply with the new, lower demand, helping to stabilize prices and minimize short-run losses. Increasing output or maintaining the same level of production could exacerbate the surplus, potentially leading to even lower prices and greater losses. Shifting capacity into cattle raising (option C) does not apply as they are already cattle ranchers. Shutting down (option A) is an extreme response that might not be necessary if adjustments in output can mitigate the impact of the shift in preferences.

Initially the Beef and Mutton Markets Are in Equilibrium, Then