solution

A few years ago, virtually every U.S. food company had seemed to “Atkinize,” introducing low carbohydrate foods by removing sugar and starch. In 1999, few food or beverage products were sold as “no-carb” or “low-carb.” In 2003, some 500 products carried such labels, and by 2004, more than 3,000 products made such a claim (Melanie Warner, “Is the Low-Carb Boom Over?” New York Times, December 5, 2004, 3.1, 3.9). Low-carb product sales rose 6% in the 13 weeks ended September 24, 2004, compared to double-digit gains in the corresponding period in 2003 and triple-digit gains in the beginning of 2004. By 2005, low-carb products were disappearing rapidly. Assume that food firms can be properly viewed as being competitive. Use side-by-side firm and market diagrams to show why firms quickly entered and then quickly exited the low-carb market. Did the firms go wrong by introducing many low carb products? (Answer in terms of fixed costs and expectations about demand.)