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 72 Supply (10 firms) 64 56 48 Demand Supply (20 firms) 40 32 Supply (30 firms) 24 16 120 240 360 480 600 720 840 960 1080 1200 QUANTITY (Thousands of tons) If there were 10 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 positive accounting profit. True False PRICE (Dollars per ton)
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 72 Supply (10 firms) 64 56 48 Demand Supply (20 firms) 40 32 Supply (30 firms) 24 16 120 240 360 480 600 720 840 960 1080 1200 QUANTITY (Thousands of tons) If there were 10 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 positive accounting profit. True False PRICE (Dollars per ton)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![### 7. Short-run supply and 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.
![Graph]
The graph presents the following details:
- The x-axis represents the **Quantity (Thousands of tons)** produced.
- The y-axis represents the **Costs (Dollars per ton)**.
#### Curves shown in the graph:
1. **Marginal Cost (MC) Curve**:
- Depicted by the orange curve.
- It shows the increase in total cost that arises from an extra unit of production.
- Initially, the MC curve decreases, reaching a minimum point at around 10 thousand tons, then increases sharply after that point.
2. **Average Total Cost (ATC) Curve**:
- Depicted by the green curve.
- It is U-shaped, showing the average cost per unit of output.
- This curve shows how ATC decreases as output increases, reaches a minimum point, and then starts to increase as output continues to grow.
3. **Average Variable Cost (AVC) Curve**:
- Depicted by the purple curve.
- This curve also starts high, decreases to a minimum, and then increases again.
- AVC is typically lower than ATC as it does not include fixed costs.
Several key points along the curves are highlighted with black squares, indicating significant points on each curve.
Understanding these cost curves is crucial for analyzing firm behavior in the short run and determining the firm's supply decisions in a competitive market.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe2e52231-be4b-497d-891a-4dab4019ab2b%2F84b94a46-c6a2-4b2f-b86a-ba94de4cec0f%2Fohaj8c.png&w=3840&q=75)
Transcribed Image Text:### 7. Short-run supply and 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.
![Graph]
The graph presents the following details:
- The x-axis represents the **Quantity (Thousands of tons)** produced.
- The y-axis represents the **Costs (Dollars per ton)**.
#### Curves shown in the graph:
1. **Marginal Cost (MC) Curve**:
- Depicted by the orange curve.
- It shows the increase in total cost that arises from an extra unit of production.
- Initially, the MC curve decreases, reaching a minimum point at around 10 thousand tons, then increases sharply after that point.
2. **Average Total Cost (ATC) Curve**:
- Depicted by the green curve.
- It is U-shaped, showing the average cost per unit of output.
- This curve shows how ATC decreases as output increases, reaches a minimum point, and then starts to increase as output continues to grow.
3. **Average Variable Cost (AVC) Curve**:
- Depicted by the purple curve.
- This curve also starts high, decreases to a minimum, and then increases again.
- AVC is typically lower than ATC as it does not include fixed costs.
Several key points along the curves are highlighted with black squares, indicating significant points on each curve.
Understanding these cost curves is crucial for analyzing firm behavior in the short run and determining the firm's supply decisions in a competitive market.
Transcribed Image Text:### Short-Run and Long-Run Industry Supply Curves
#### Using Supply Curves to Analyze Market Equilibrium
To understand the market equilibrium in different scenarios, let's analyze the short-run supply curves with different numbers of firms in the market. We'll use graphical points to represent these curves and observe how the equilibrium price and quantity change.
**Instructions for Plotting:**
1. **Orange Points (Square Symbol):** Represent the initial short-run industry supply curve when there are 10 firms.
2. **Purple Points (Diamond Symbol):** Represent the short-run industry supply curve when there are 20 firms.
3. **Green Points (Triangle Symbol):** Represent the short-run industry supply curve when there are 30 firms.
### Graph Analysis:
**Graph Description:**
- **X-Axis (Horizontal):** Quantity (Thousands of tons).
- **Y-Axis (Vertical):** Price (Dollars per ton).
- **Demand Curve:** Downward-sloping, showing the relationship between quantity demanded and price.
**Legend:**
- **Supply (10 firms):** Orange squares.
- **Supply (20 firms):** Purple diamonds.
- **Supply (30 firms):** Green triangles.
### Equilibrium Analysis:
- **If there were 10 firms in the market:**
- The short-run equilibrium price of steel would be \(\$\_\_\_\_\) per ton.
- At this price, firms in the industry would \(\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\).
- **In the long run:**
- Firms would \(\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\) the steel market.
- Knowing that competitive firms earn \(\_\_\_\_\_\_\_\_\_\_\_\_\_\_\) economic profit in the long run:
- The long-run equilibrium price must be \(\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\).
- From the graph, this means there will be \(\_\_\_\_\_\_\_\_\_\_\_\_\) firms operating in the steel industry in long-run equilibrium.
### True/False Question:
- **Statement:** Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit.
- **Choices:**
- True
- False
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