According to an article by Sarah Witten published this May 18, 2018 on CNBC. com, birth rates in the U. S. have been falling since 2008, with the result that producers of baby diapers are experiencing an extended period of declining demand.

Assume that the baby diaper industry is perfectly competitive and in long run equilibrium in 2007. Assume each firm has a single diaper plant, and draw a graph of the market and of a representative firm. What characterizes this equilibrium?
Show the effects of the subsequent decline in the birth rate on price, quantities, and profits. What will the typical firm do in the short run?
Assuming a firm continues to operate its plant in the short run, what will it do in the long run? (You do not have to graph the long run.)
One strategy adopted by baby diaper producers is to switch plants from producing baby diapers to adult diapers, because the aging baby boom generation in the U. S. is rapidly increasing the percentage of people in the "over 65 years of age" category. Assume the market for adult diapers is perfectly competitive, draw it initially in long run equilibrium, and then show how the aging baby boom generation affects price, quantities, and profits.
Using graphs to illustrate your answer, explain what will happen to price, output, and profits in the adult diaper market in the long run. Include in your response any assumptions you make when predicting the level of long run price.

a) DIAPER market is witnessing a frenzy of activity by manufacturers launching brands, and petrochemical firms planning to produce superabsorbent polymers (SAPs) used in making disposable nappies.The disposable diaper market in the country is at a nascent stage, with extremely low consumption. However, the potential is huge, given the largest infant population in the world and a large, growing middle class with expanding disposable incomes. Diaper manufacturers and petrochemical companies seem to have realized the enormity of this emerging market.The Indian disposable diaper market is currently pegged at nearly Indian Rupees (Rs) 700m ($17.4m, E12.6m) and 30,000 tonnes/year, and is estimated to grow between 5-10% annually. It comprises brands like Huggies (60% market share) and Pampers (30%) from multinationals Kimberly Clark and Procter & Gamble, respectively. Domestic consumer products major Godrej's Snuggy is the third-largest brand of diapers in the Indian market, with a 10% share.

Procter & Gamble launched its $6bn (€4.4bn) diaper brand Pampers in India in December 2006. "Diapers is a focus area for the company in India and has huge potential," says Shantanu Khosla, managing director of Procter & Gamble India. The potential for Pampers is huge, as India has 45 million babies, the largest number of infants in the world, according to associate marketing director of Pampers J P Kuehlwein.

Godrej also has expansion plans. It acquired the Snuggy brand of diapers from Shogun Industries late last year. It has also recently formed a Rs200m joint venture with SCA of the UK for manufacturing and marketing of baby diapers in India, Nepal and Bhutan.

Most diaper brands continue to be imported, including Snuggy. Godrej outsources its diapers from a Chinese company and will continue to do so until volumes pick up.

Other companies are also getting into the act. India's third-largest software exporter, Wipro, is entering the diaper market, as is Malaysia's People & Gratt with its Shee Shee brand of diapers.

According to Musaib Ahmed, director of People & Gratt, his company is eyeing a 10% market share in India in its first year of operations. He says the company plans to establish a wide distribution network in the major metropolitan and second tier cities in the first year.

b) , since the increase in price does not have a large impact on quantity demanded. If an increase in price causes a decrease in total revenue, then demand can be said to be elastic, since the increase in price has a large impact on quantity demanded.On the other hand, if the price for an inelastic good is increased and the demand does not change, the total revenue increases due to the higher price and static quantity demanded. However, price increases typically do lead to a small decrease in quantity demanded.

Price inelasticity is very beneficial for businesses and is important in understanding how they should formulate their pricing strategy. Price inelasticity offers firms greater flexibility with prices as the change in demand remains essentially the same whether prices increase or decrease. If the price goes up or down, you can expect consumers’ buying habits to stay mostly unchanged.

How Price Inelasticity Affects Demand

For price inelastic goods or services, the change in the amount demanded is minimal with respect to the change in price.

This can affect demand and total revenue for a business in two ways.

Less Overall Revenue

If the price for an inelastic good is lowered, the demand for that good does not increase, resulting in less overall revenue due to the lower price and no change in demand. This would indicate that the firm should not reduce the price of its goods as there is no beneficial outcome in doing so.

More Overall Revenue

On the other hand, if the price for an inelastic good is increased and the demand does not change, the total revenue increases due to the higher price and static quantity demanded. However, price increases typically do lead to

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