Consider the perfectly 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 80 70 60 50 40 30 20 100 10 90 0 80 70 60 50 40 30 20 The following diagram shows the market demand for steel. 10 0 MC 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. 0 5 0 ATC D AVC 0 0 10 15 20 25 30 35 QUANTITY (Thousands of tons) 40 Demand 123 250 373 500 623 750 873 QUANTITY (Thousands of tons) 45 1000 1123 1250 50 Because you know that perfectly competitive firms earn be $ O (?) Supply (20 firms) Supply (30 firms) A Supply (40 firms) If there were 30 firms in this market, the short-run equilibrium price of steel would be $ Therefore, in the long run, firms would per ton. From the graph, you can see that this means there will be (?) per ton. At that price, firms in this industry would the steel market. economic profit in the long run, you know the long-run equilibrium price must firms operating in the steel industry in long-run equilibrium.
Consider the perfectly 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 80 70 60 50 40 30 20 100 10 90 0 80 70 60 50 40 30 20 The following diagram shows the market demand for steel. 10 0 MC 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. 0 5 0 ATC D AVC 0 0 10 15 20 25 30 35 QUANTITY (Thousands of tons) 40 Demand 123 250 373 500 623 750 873 QUANTITY (Thousands of tons) 45 1000 1123 1250 50 Because you know that perfectly competitive firms earn be $ O (?) Supply (20 firms) Supply (30 firms) A Supply (40 firms) If there were 30 firms in this market, the short-run equilibrium price of steel would be $ Therefore, in the long run, firms would per ton. From the graph, you can see that this means there will be (?) per ton. At that price, firms in this industry would the steel market. economic profit in the long run, you know the long-run equilibrium price must 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:Consider the perfectly 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
80
70
20
100
10
90
0
80
70
10
0
0
The following diagram shows the market demand for steel.
MC
5
0 123
ATC
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.
AVC
0
10 15
20 25 30 35
QUANTITY (Thousands of tons)
40
Demand
45
250 373 500 623 750 873 1000 1123 1250
QUANTITY (Thousands of tons)
50
Because you know that perfectly competitive firms earn
be $
(?)
0
Supply (20 firms)
Supply (30 firms)
Supply (40 firms)
If there were 30 firms in this market, the short-run equilibrium price of steel would be $
Therefore, in the long run, firms would
per ton. From the graph, you can see that this means there will be
(?)
per ton. At that price, firms in this industry would
the steel market.
economic profit in the long run, you know the long-run equilibrium price must
firms operating in the steel industry in long-run equilibrium.
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