Suppose that purely competitive firms producing cashews discover that P exceeds MC. Will their combined output of cashews be too little, too much, or just right to achieve allocative efficiency?

In the long run, what will happen to the supply of cashews and the price of cashews?
a.Supply will decrease, and the price of cashews will decrease.
b.Supply will decrease, and the price of cashews will increase.
c.Supply will increase, and the price of cashews will decrease.
d.Supply will increase, and the price of cashews will increase.

Use a supply and demand diagram to show how that response will change the combined amount of consumer surplus and producer surplus in the market for cashews.

Instructions (Given the initial equilibrium price P1 and quantity Q1):
1. Identify the initial surplus using the "Initial" (surplus) shader tool. This will place a triangle on the graph. Click and drag the end points of the triangle to show the consumer and producer surplus at the original price and quantity.

2. Click and drag the supply curve to show how the market reacts to the P > MC condition.

3. Click and drag the initial equilibrium point to the new equilibrium point.

4. Identify the resulting consumer and producer surplus using the "Final" (surplus) shader tool.