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 (MCMC), average total cost (ATCATC), and average variable cost (AVCAVC) curves shown on the following graph. The following diagram shows the market demand for steel. Use the orange points (square symbol) to plot the 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 15 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 20 firms. If there were 20 firms in this market, the short-run equilibrium price of steel would be per ton. At that price, firms in this industry would. Therefore, in the long run, firms would the steel market. Because you know that perfectly competitive firms earn 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.

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 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 (MCMC), average total cost (ATCATC), and average variable cost (AVCAVC) curves shown on the following graph.

The following diagram shows the market demand for steel.

Use the orange points (square symbol) to plot the 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 15 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 20 firms.

If there were 20 firms in this market, the short-run equilibrium price of steel would be

per ton. At that price, firms in this industry would. Therefore, in the long run, firms would the steel market.

Because you know that perfectly competitive firms earn 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.

True or False: Each of the firms operating in this industry in the long run earns negative accounting profit.

True

False

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.
100
90
80
70
COSTS (Dollars per ton)
8
8
30
20
10
0
+
0
MC
ATC
AVC
D
D
D
10 20 30 40 50 60 70 80 90
QUANTITY OF OUTPUT (Thousands of tons)
100

Use the orange points (square symbol) to plot the 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 15 firms. Finally, use the green points (triangle symbol) to plot the
short-run industry supply curve when there are 20 firms.
PRICE (Dollars per lon)
100
90
80
70
60
50
40
30
20
10
0
0
Demand
+
123 250 373 500 623 750 873 1000 1123 1250
QUANTITY OF OUTPUT (Thousands of tons)
Because you know that perfectly competitive firms earn
be 5
0
Supply (10 firms)
O True
O False
a>
Supply (15 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
4
Supply (20 firms)
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.
True or False: Each of the firms operating in this industry in the long run earns negative accounting profit.

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