HW#4 (Costs of Production, Competitive Markets) 16. 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 varlable cost (AVC) curves shown on the following graph. 90 72 64 56 ATC 48 40 32 24 16 AVC 6 9 12 15 18 21 24 27 30 QUANTITY (Thousands of tons) The following dlagram shows the market demand for steel. Use the orange polnts (square symbol) to plot the Initial 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 polnts (diamond symbol) to plot the short-run Industry supply curve when there are 40 firms. Finally, use the green polnts (triangle symbol) to COSTS (Dollars per ton) HW#4 (Costs of Production, Competitive Markets) purple polnts (diamond symbol) to plot the short-run Industry supply curve when there are 40 firms. Finally, use the green polnts (triangle symbol) to plot the short-run Industry supply curve when there are 60 firms. 90 72 Supply (20 firms) 64 56 Demand Supply (40 firms) 40 32 Supply (60 firms) 24 16 120 240 360 490 600 720 940 950 1090 1200 QUANTITY (Thousands of tons) If there were 60 firms In this market, the short-run equilibrlum price of steel would be per ton. At that price, firms In this Industry would Therefore, In the long run, firms would the steel market. Because you know that competitive firms earn economic profit In the long run, you know the long-run equilibrlum price must be per ton. From the graph, you can see that this means there will be firms operating In the steel Industry In long-run equlibrlum. 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 False PRICE (Dollars per ton)