PRICE (Dollars per pound) 20 10 50 5. Short-run supply and long-run equilibrium Consider the competitive market for ruthenium. 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 pound) 60 100 90 40 ATC 20 10 MC AVC 0 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of pounds) ? 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. 80 100 ° 125 Demand 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) Supply (20 firms) ••• Supply (10 firms) Supply (30 firms) If there were 10 firms in this market, the short-run equilibrium price of ruthenium would be S would Therefore, in the long run, firms would Because you know that competitive firms earn per pound. At that price, firms in this industry the ruthenium market. 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 ruthenium 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 negative accounting profit. True False
PRICE (Dollars per pound) 20 10 50 5. Short-run supply and long-run equilibrium Consider the competitive market for ruthenium. 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 pound) 60 100 90 40 ATC 20 10 MC AVC 0 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of pounds) ? 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. 80 100 ° 125 Demand 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) Supply (20 firms) ••• Supply (10 firms) Supply (30 firms) If there were 10 firms in this market, the short-run equilibrium price of ruthenium would be S would Therefore, in the long run, firms would Because you know that competitive firms earn per pound. At that price, firms in this industry the ruthenium market. 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 ruthenium 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 negative accounting profit. True False
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:PRICE (Dollars per pound)
20
10
50
5. Short-run supply and long-run equilibrium
Consider the competitive market for ruthenium. 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 pound)
60
100
90
40
ATC
20
10
MC
AVC
0
0
5
10
15
20 25 30 35 40
45
50
QUANTITY (Thousands of pounds)
?
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.
80
100
°
125
Demand
250 375 500 625 750 875 1000 1125 1250
QUANTITY (Thousands of pounds)
Supply (20 firms)
•••
Supply (10 firms)
Supply (30 firms)
If there were 10 firms in this market, the short-run equilibrium price of ruthenium would be S
would
Therefore, in the long run, firms would
Because you know that competitive firms earn
per pound. At that price, firms in this industry
the ruthenium market.
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 ruthenium 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 negative accounting profit.
True
False
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