7. Short-run supply and long-run equilibrium Consider the competitive market for rhenium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph. 80 70 00 y 50 40 ATC 30 20 AVC 10+ MC-D COSTS (Dollars per pound) (punod sa ) 100 90 BO 70 60 The following graph plots the market demand curve for rhenium. 50 100 20 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. 10 90 D 0 0 5 10 15 20 25 30 QUANTITY (Thousands of pounds) equilibrium. 35 40 45 50 Demand 0 125 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) O True O False 0 (?) Supply (10 firma) Supply (20 firms) A Supply (30 firms) If there were 10 firms in this market, the short-run equilibrium price of rhenium would be S would Y Therefore, in the long run, firms would (?) Because you know that competitive firms earn, 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 rhenium industry in long-run per pound. At that price, firms in this industry the rhenium market. True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit.
7. Short-run supply and long-run equilibrium Consider the competitive market for rhenium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph. 80 70 00 y 50 40 ATC 30 20 AVC 10+ MC-D COSTS (Dollars per pound) (punod sa ) 100 90 BO 70 60 The following graph plots the market demand curve for rhenium. 50 100 20 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. 10 90 D 0 0 5 10 15 20 25 30 QUANTITY (Thousands of pounds) equilibrium. 35 40 45 50 Demand 0 125 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) O True O False 0 (?) Supply (10 firma) Supply (20 firms) A Supply (30 firms) If there were 10 firms in this market, the short-run equilibrium price of rhenium would be S would Y Therefore, in the long run, firms would (?) Because you know that competitive firms earn, 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 rhenium industry in long-run per pound. At that price, firms in this industry the rhenium market. True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:7. Short-run supply and long-run equilibrium
Consider the competitive market for rhenium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the
same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph.
80
70
60
y
50
D
40
ATC
30
AVC
MCD
COSTS (Dollars per pound)
PRICE (Dollars per pound)
100
90
80
70
The following graph plots the market demand curve for rhenium.
60
50
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.
40
20
100
10
90
0
20
10
0
0
0
+
5 10 15 20 25 30 35 40
QUANTITY (Thousands of pounds)
equilibrium.
125 250 375 500 625 750 875 1000 1125 1250
QUANTITY (Thousands of pounds)
Demand
Because you know that competitive firms earn
O True
(?)
If there were 10 firms in this market, the short-run equilibrium price of rhenium would be $
would
. Therefore, in the long run, firms would
O False
Supply (10 firms)
•
Supply (20 firms)
per pound. From the graph, you can see that this means there will be
Supply (30 firms)
(?)
per pound. At that price, firms in this industry
the rhenium market.
economic profit in the long run, you know the long-run equilibrium price must be
firms operating in the rhenium industry in long-run
True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit.
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