7. Short-run supply and long-run equilibrium Consider the perfectly 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. COSTS (Dollars per ton) 100 90 80 70 60 50 40 ATC 30 20 10 + MC AVC 0 0 5 10 15 20 25 30 35 40 45 50 QUANTITY OF OUTPUT (Thousands of tons) The following diagram shows the market demand for steel. ⑦? Use the orange points (square symbol) to plot the short-run industry supply curve when there are 20 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 30 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 40 firms. 100 90 80 Supply (20 firms) The following diagram shows the market demand for steel. Use the orange points (square symbol) to plot the short-run industry supply curve when there are 20 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 30 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 40 firms. PRICE (Dollars per ton) 100 70 ༔ ༔ ༔ ę ༔ ་8་ཤྲཱ་ 8་ 20 10 0 0 123 Supply (20 firms) Supply (30 firms) Supply (40 firms) Demand 250 373 500 623 750 873 1000 1123 1250 QUANTITY OF OUTPUT (Thousands of tons) If there were 20 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 perfectly competitive firms earn be $ economic profit in the long run, you know the long-run equilibrium price must firms operating in the steel industry in long-run equilibrium. per ton. From the graph, you can see that this means there will be True or False: Each of the firms operating in this industry in the long run earns negative accounting profit. ○ True False

7. Short-run supply and long-run equilibrium Consider the perfectly 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. COSTS (Dollars per ton) 100 90 80 70 60 50 40 ATC 30 20 10 + MC AVC 0 0 5 10 15 20 25 30 35 40 45 50 QUANTITY OF OUTPUT (Thousands of tons) The following diagram shows the market demand for steel. ⑦? Use the orange points (square symbol) to plot the short-run industry supply curve when there are 20 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 30 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 40 firms. 100 90 80 Supply (20 firms) The following diagram shows the market demand for steel. Use the orange points (square symbol) to plot the short-run industry supply curve when there are 20 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 30 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 40 firms. PRICE (Dollars per ton) 100 70 ༔ ༔ ༔ ę ༔ ་8་ཤྲཱ་ 8་ 20 10 0 0 123 Supply (20 firms) Supply (30 firms) Supply (40 firms) Demand 250 373 500 623 750 873 1000 1123 1250 QUANTITY OF OUTPUT (Thousands of tons) If there were 20 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 perfectly competitive firms earn be $ economic profit in the long run, you know the long-run equilibrium price must firms operating in the steel industry in long-run equilibrium. per ton. From the graph, you can see that this means there will be True or False: Each of the firms operating in this industry in the long run earns negative accounting profit. ○ True False

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter12: The Cost Of Production

Section: Chapter Questions

Problem 4CQQ

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