01 May Question: 7. Short-run supply and long-run equilibrium Consider the competitive market for titanium. Assume…
7. Short-run supply and long-run equilibrium Consider the competitive market for titanium. 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 80 50 40 30 30, 15 20 AVC 10 102030405060 708090100 QUANTITY (Thousands of pounds)
The following diagram shows the market demand for titanium 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 15 firms. Finally, use the green points (trlangle symbol) to plot the short-run industry supply curve when there are 20 firms 100 Supply (10 firms) 70 Supply (15 firms) 50 40 Supply (20 firms) 30 20 10 0 126 250 375 500 626 760 875 1000 1126 1260 QUANTITY (Thousands of pounds)
Supply (10 firms) Supply (15 firms) emand 0 125 250 375 500 625 750 875 1000 1126 1250 QUANTITY (Thousands of pounds) If there were 10 firms in this market, the short-run equilibrium price of titanium would be would earn a positive profit ▼ . Therefore, in the long run, firms would enter $52 per pound. At that price, firms in this industry the titanium market. Because you know that competitive firms earn zeroeconomic profit in the long run, you know the long-run equilibrium price must be $44 per pound. From the graph, you can see that this means there will be 20 firms operating in the titanium 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 O False
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