01 May Question: 7. Short-run supply and long-run equillbrium Consider the competitive market for steel. Assume th…
7. Short-run supply and long-run equillbrium 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 27.5, 70 80 70 30 20 AVC 10 0s10 1520 25 30 35 40 45 QUANTITY (Thousands of tons) 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 the portion of the supply curve that corresponds to prices where there is no output since this is the Industry disregard purple points (diamond symbol) to plot the short-run industry supply curve when there are 30 firms. plot the short-run industry supply curve when there are 40 firms supply curve.) Next, use the Finally, use the green points (triangle symbol) to 100 90 80 Supply (20 firms) 70 Supply (30 firms) 50 Supply (40 firms) nd 30 20 10 0 125 250 375 600 625 750 75 1000 1126 1250 QUANTITY (Thousands of tons) 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 .Therefore, in the long run, firms would the steel market Because you know that competitive firms earneconomic 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. or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting proft
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