Gilberto Company currently manufactures 87,000 units per year of one of its crucial parts. Variable costs are $3.05 per unit, fixed costs related to making this part are $97,000 per year, and allocated fixed costs are $84,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Gilberto is considering buying the part from a supplier for a quoted price of $4.25 per unit guaranteed for a three-year period. Required:
a. Calculate the total incremental cost of making 87,000 and buying87,000 units.
b. Should the company to manufacture the or should it buy the part from the outside suppller?

answer: in the short-run firms will respond by raising the price of turkey.

explanation: initially the long-run equilibrium is at a price of $5 per pound of turkey and a quantity of 50 million pounds per year. now, when webmd claims that a protein found in turkey will increase your expected lifespan by 4 years. the consumers demand for turkey will increase at every price shifting the demand curve to the right from d1 to d2. while, there will be no change in the supply curve in the short-run as it is not possible for producers to adjust supply so quickly. as a result the new equilibrium will occur at a higher price and a higher quantity of turkey.

thus, in the short run firms will respond by increasing the price of turkey, selling more quantity at a higher price and earning economic profits.