Answered: The following diagram shows the market…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The following diagram shows the market demand for steel.

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.

Supply (10 firms)Supply (20 firms)Supply (30 firms)01202403604806007208409601080120080726456484032241680PRICE (Dollars per ton)QUANTITY (Thousands of tons)Demand

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 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: 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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