7. Short-run supply and long-run equilibrium Consider the competitive market for ruthenium. 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.
7. Short-run supply and long-run equilibrium Consider the competitive market for ruthenium. 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.
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter13: Firms In Competitive Markets
Section: Chapter Questions
Problem 7PA
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![7. Short-run supply and long-run equilibrium
Consider the competitive market for ruthenium. 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.
COSTS (Dollars per pound)
8
00
72
64
8
40
24
16
1
0
0
8,4
ATC
AVC
MCO
24/
6 19 12 15 16 21
QUANTITY (Thousands of pounds).
27
30](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0f7b7149-e864-4df0-aea1-1826969f75f5%2Fc2a7ae43-6d7d-4274-a882-84ebc35c272f%2Fd01o8j_processed.jpeg&w=3840&q=75)
Transcribed Image Text:7. Short-run supply and long-run equilibrium
Consider the competitive market for ruthenium. 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.
COSTS (Dollars per pound)
8
00
72
64
8
40
24
16
1
0
0
8,4
ATC
AVC
MCO
24/
6 19 12 15 16 21
QUANTITY (Thousands of pounds).
27
30
![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.
PRICE (Dollars per pound)
80
72
64
56
48
40
32
Z
16
S
0
Demand
0 120 240 360 400 600 720 640 960 1000 1200
QUANTITY (Thousands of pounds)
equilibrium.
-0-
Supply (10 firms)
Supply (20 firms)
O True
O False
Supply (30 firms)
If there were 30 firms in this market, the short-run equilibrium price of ruthenium would be S
would
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 ruthenium industry in long-run
per pound. At that price, firms in this industry
the ruthenium 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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0f7b7149-e864-4df0-aea1-1826969f75f5%2Fc2a7ae43-6d7d-4274-a882-84ebc35c272f%2Fedipj9_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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.
PRICE (Dollars per pound)
80
72
64
56
48
40
32
Z
16
S
0
Demand
0 120 240 360 400 600 720 640 960 1000 1200
QUANTITY (Thousands of pounds)
equilibrium.
-0-
Supply (10 firms)
Supply (20 firms)
O True
O False
Supply (30 firms)
If there were 30 firms in this market, the short-run equilibrium price of ruthenium would be S
would
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 ruthenium industry in long-run
per pound. At that price, firms in this industry
the ruthenium 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.
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