7. Short-run supply and long-run equilibriumConsider the competitive market for steel. Assume that, regardless of how many firms are in the industry, every firm in the industry is identical and faces the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves shown on the following graph. Consider the competitive market for steel. Assume that, regardless of how many firms are in the industry, every firm in the industry is identical andfaces the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves shown on the following graph.8072645648ATC403224AVC16MC O41216202428323640QUANTITY (Thousands of tons)COSTS (Dollars per ton) Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 firms in the market. (Hint: You candisregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use thepurple points (diamond symbol) to plot the short-run industry supply curve when there are 20 firms. Finally, use the green points (triangle symbol) toplot the short-run industry supply curve when there are 30 firms.8072Supply (10 firms)645648DemandSupply (20 firms)4032Supply (30 firms)2416120240360480600720B4096010B0 1200QUANTITY (Thousands of tons)If there were 10 firms in this market, the short-run equilibrium price of steel would be $. Therefore, in the long run, firms would|per ton. At that price, firms in this industry wouldthe steel market.Because you know that competitive firms earneconomic profit in the long run, you know the long-run equilibrium price must be24per ton. From the graph, you can see that this means there will befirms operating in the steel industry in long-run equilibrium.True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit.TrueO FalsePRICE (Dollars per ton)

Answered: Consider the competitive market for…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter7: Production, Costs, And Industry Structure

Section: Chapter Questions

Problem 19RQ: What shapes would you generally expect each of the following cost curves to have: fixed costs,...

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7. Short-run supply and long-run equilibrium

Consider the competitive market for steel. Assume that, regardless of how many firms are in the industry, every firm in the industry is identical and faces the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves shown on the following graph.

Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 firms in the market. (Hint: You can
disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the
purple points (diamond symbol) to plot the short-run industry supply curve when there are 20 firms. Finally, use the green points (triangle symbol) to
plot the short-run industry supply curve when there are 30 firms.
80
72
Supply (10 firms)
64
56
48
Demand
Supply (20 firms)
40
32
Supply (30 firms)
24
16
120
240
360
480
600
720
B40
960
10B0 1200
QUANTITY (Thousands of tons)
If there were 10 firms in this market, the short-run equilibrium price of steel would be $
. Therefore, in the long run, firms would
|per ton. At that price, firms in this industry would
the steel market.
Because you know that competitive firms earn
economic profit in the long run, you know the long-run equilibrium price must be
24
per ton. From the graph, you can see that this means there will be
firms operating in the steel industry in long-run equilibrium.
True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit.
True
O False
PRICE (Dollars per ton)

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