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. COSTS (Dollars per 80 72 64 56 48 40 32 24 16 8 0 0 4 g MC-D 8 ATC AVC 12 16 20 24 28 32 QUANTITY (Thousands of pounds) H 36 40 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. (nuod ad smontano 72 64 16 0 • Demand 120 240 360 460 600 720 840 960 1000 1200 QUANTITY (Thousands of pounds) -0 Supply (10 firms) ◆ 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 Therefore, in the long run, firms would Because you know that competitive firms earn S 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 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 negative accounting profit.
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. COSTS (Dollars per 80 72 64 56 48 40 32 24 16 8 0 0 4 g MC-D 8 ATC AVC 12 16 20 24 28 32 QUANTITY (Thousands of pounds) H 36 40 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. (nuod ad smontano 72 64 16 0 • Demand 120 240 360 460 600 720 840 960 1000 1200 QUANTITY (Thousands of pounds) -0 Supply (10 firms) ◆ 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 Therefore, in the long run, firms would Because you know that competitive firms earn S 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 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 negative accounting profit.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:5. 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.
72
64
56
N
48
ATC
40
32
24
AVC
MC
COSTS (Dollars per pound)
80
16
8
0
0
4
12 16 20 24
28
QUANTITY (Thousands of pounds)
8
32
0
36 40
The following graph plots the market demand curve for rhenium.
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
24
16
8
0
0
120 240 360 480 600 720 840 960 1080 1200
QUANTITY (Thousands of pounds)
equilibrium.
Demand
Supply (10 firms)
O True
Supply (20 firms)
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
4
Supply (30 firms)
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 negative accounting profit.
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