7. Short-run supply and long-run equilibrium Consider the competitive market for copper. 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.

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7. Short-run supply and long-run equilibrium

Consider the competitive market for copper. 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.
 
7. Short-run supply and long-run equilibrium
Consider the competitive market for copper. Assume that, regardliess 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 folowing graph.
64
56
ATC
40
24
16
AVC
MOO
E9 12
15 11 21
24
27
30
QUANTITY (Thousands of pounds)
The following diagram shows the market demand for copper.
Lise the orange points (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 carresponds to prices where there is no output since this is the industry supply curve.) Next, use the
purple paints (diamond symbal) to plot the short-run industry supply curve when there are 40 firms. Finaly, use the green points (triangle symbal) to
plot the short-run industry supply curve when there are 60 firms.
72
Supply (20 firms)
56
Demand
Supply (40 firms)
40
12
Supply (60 firms)
24
16
120
240
360 480
720
40 990
QUANTITY (Thousands of pounds)
(punod Jad sIog) SISOa
(punod jad smon) an4
Transcribed Image Text:7. Short-run supply and long-run equilibrium Consider the competitive market for copper. Assume that, regardliess 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 folowing graph. 64 56 ATC 40 24 16 AVC MOO E9 12 15 11 21 24 27 30 QUANTITY (Thousands of pounds) The following diagram shows the market demand for copper. Lise the orange points (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 carresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple paints (diamond symbal) to plot the short-run industry supply curve when there are 40 firms. Finaly, use the green points (triangle symbal) to plot the short-run industry supply curve when there are 60 firms. 72 Supply (20 firms) 56 Demand Supply (40 firms) 40 12 Supply (60 firms) 24 16 120 240 360 480 720 40 990 QUANTITY (Thousands of pounds) (punod Jad sIog) SISOa (punod jad smon) an4
If there were 60 firms in this market, the short-run equilibrium price of copper would be
per pound. At that price, firms in this industry
- Therefore, in the long run, firms would
the copper market.
pinom
Because you know that competitive firms eam
economic profit in the long run, you know the long-run equilibrium price must be
per pound. From the graph, you can see that this means there will be
- firms operating in the copper 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 negative accounting profit.
O True
O False
Transcribed Image Text:If there were 60 firms in this market, the short-run equilibrium price of copper would be per pound. At that price, firms in this industry - Therefore, in the long run, firms would the copper market. pinom Because you know that competitive firms eam economic profit in the long run, you know the long-run equilibrium price must be per pound. From the graph, you can see that this means there will be - firms operating in the copper 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 negative accounting profit. O True O False
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