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# 7. Short-run supply and long-run equilibrium Consider the competitive market for steel. Assume that,   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 ? 100 90 80 70 60 50 40 ATC 30 20 AVC MC L 10 C 5 10 15 20 30 35 40 45 50 QUANTITY (Thousands of tons) COSTS (Dollars per ton) 25 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 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. 100 9C Supply (20 firms) 80 70 Supply (30 firms) 60 50 40 Supply (40 firms) Demand 30 20 10 C 125 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of tons) PRICE (Dollars per ton) If there were 30 firms in this market, the short-run equilibrium price of steel would be \$ per ton. At that price, firms in this industry would the steel market. Therefore, in the long run, firms would Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must be firms operating in the steel industry in long-run equilibrium per ton. From the graph, you can see that this means there will be 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

Apr 06 2020 View more View Less Subscribe To Get Solution