Question: Suppose the recent scare over tomatoes tainted with e-coli bacteria has led to a permanent decline in the demand for tomatoes in the U.S. Suppose further that tomatoes are produced by a perfectly competitive industry with no economies or diseconomies of scale.

a) Show the short run impact of the change on the tomato industry and on Kato’s Tomatoes, a typical tomato farm run by a cousin of Isao who lives in California.

b) Show what happens to Kato’s Tomatoes and the tomato industry in the long run.