7. Short-run supply and long-run equilibrium Consider the competitive market for ruthenlum. 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. (puno je su PRICE (Dollars per pound) pune de 100 90 80 70 60 50 30 100 10 90 0 10 0 The following graph plots the market demand curve for ruthenlum. 0 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. MC 5 ATC AVC D D 10 15 20 30 35 40 QUANTITY (Thousands of pounds) Demand 45 50 0 125 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) -0 Supply (10 firms) • Supply (20 firms) Supply (30 firms) (?) If there were 10 firms in this market, the short-run equilibrium price of ruthenium would be S would ▼. Therefore, in the long run, firms would per pound. At that price, firms in this industry the ruthenium market. Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must be Sper pound. From the graph, you can see that this means there will be firms operating in the ruthenium 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
7. Short-run supply and long-run equilibrium Consider the competitive market for ruthenlum. 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. (puno je su PRICE (Dollars per pound) pune de 100 90 80 70 60 50 30 100 10 90 0 10 0 The following graph plots the market demand curve for ruthenlum. 0 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. MC 5 ATC AVC D D 10 15 20 30 35 40 QUANTITY (Thousands of pounds) Demand 45 50 0 125 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) -0 Supply (10 firms) • Supply (20 firms) Supply (30 firms) (?) If there were 10 firms in this market, the short-run equilibrium price of ruthenium would be S would ▼. Therefore, in the long run, firms would per pound. At that price, firms in this industry the ruthenium market. Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must be Sper pound. From the graph, you can see that this means there will be firms operating in the ruthenium 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
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 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.
90
80
70
0
60
V
50
40
0
ATC
30
20
AVC
MC
COSTS (Dollars per pound)
PRICE (Dollars per pound)
100
90
80
70
The following graph plots the market demand curve for ruthenlum.
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
30
20
100
10
10
0
0
0
5
10 15 20 25 30 35 40
QUANTITY (Thousands of pounds)
45 50
Demand
0 125 250 375 500 625
625 750
750 875 1000 1125 1250
QUANTITY (Thousands of pounds)
Supply (10 firms)
?
Supply (20 firms)
Supply (30 firms)
(?)
If there were 10 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
$ per pound. From the graph, you can see that this means there will be
equilibrium.
per pound. At that price, firms in this industry
the ruthenium market.
economic profit in the long run, you know the long-run equilibrium price must be
firms operating in the ruthenium 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 negative accounting profit.
O True
O False
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