Green caterpillar garden supplies inc. just reported earnings after tax (also called net income) of $9,250,000 and a current stock price of $12.00 per share. the company is forecasting an increase of 25% for its after-tax income next year, but it also expects it will have to issue 3,000,000 new shares of stock (raising its shares outstanding from 5,500,000 to 8,500,000). if green caterpillar’s forecast turns out to be correct and its price/earnings (p/e) ratio does not change, what does the company’s management expect its stock price to be one year from now? (round any p/e ratio calculation to four decimal places.)

b.

c.

d.

g.

those r all of them i believe

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.