Consider the competitive market for steel. 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. COSTS (Dolars per ton) PRICE (Dolars per ton) 88 g 30 2 8 10 20 O 10 0 The following graph shows the market demand for steel. 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 30 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 40 firms. MCO ATC D O S 10 15 AVC 35 QUANTITY (Thousands of tons) 40 Qemand 250 375 500 925 750 8/5 1000 1125 1250 QUANTITY (Thousands of tons) 0 Supply (20firms) Supply (30 femms) Supply (40 firmes) If there were 20 firms in this market, the short-run equilibrium price of steel would be Therefore, in the long run, firms would per ton. At that price, firms in this industry would the steel market. Because you know that competitive firms eam_ economic profit in the long run, you know the long-run equilibrium price must be per ton. From the graph, you can see that this means there will be firms operating in the steel industry in long-run equilibrium.
Consider the competitive market for steel. 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. COSTS (Dolars per ton) PRICE (Dolars per ton) 88 g 30 2 8 10 20 O 10 0 The following graph shows the market demand for steel. 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 30 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 40 firms. MCO ATC D O S 10 15 AVC 35 QUANTITY (Thousands of tons) 40 Qemand 250 375 500 925 750 8/5 1000 1125 1250 QUANTITY (Thousands of tons) 0 Supply (20firms) Supply (30 femms) Supply (40 firmes) If there were 20 firms in this market, the short-run equilibrium price of steel would be Therefore, in the long run, firms would per ton. At that price, firms in this industry would the steel market. Because you know that competitive firms eam_ economic profit in the long run, you know the long-run equilibrium price must be per ton. From the graph, you can see that this means there will be firms operating in the steel industry in long-run equilibrium.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Homework
Consider the competitive market for steel. 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.
COSTS (Dollars per ton)
PRICE (Dollars per ton)
100
90
70
80
50
40
30
100
20
90
0
80
70
60
50
40
30
20
The following graph shows the market demand for steel.
0
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 30 firms. Finally, use the green points (triangle symbol) to
plot the short-run industry supply curve when there are 40 firms.
D
MC
D
ATC
AVC
D
O
5 10 15 20 25
35
QUANTITY (Thousands of tons)
Demand
50
250 375 500
750 875 1000 1125 1250
QUANTITY (Thousands of tons)
0
Supply (20 firms)
Supply (30 firms)
4
Supply (40 firms)
If there were 20 firms in this market, the short-run equilibrium price of steel would be
. Therefore, in the long run, firms would
?
per ton. At that price, firms in this industry would
the steel market.
Because you know that competitive firms ear
economic profit in the long run, you know the long-run equilibrium price must be
per ton. From the graph, you can see that this means there will be firms operating in the steel industry in long-run equilibrium.
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