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. The following diagram shows the market demand for copper. Use 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 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 40 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 60 firms. 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 would . Therefore, in the long run, firms would the copper market. 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 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 positive accounting profit. True False

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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.

The following diagram shows the market demand for copper.

Use 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 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 40 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 60 firms.

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 would . Therefore, in the long run, firms would the copper market.

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 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 positive accounting profit.

True

False

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