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. COSTS (Dollars per ton) + MC D AVC OF 0 5 10 40 45 50 15 20 25 30 35 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 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. Supply (20 firms) Supply (30 firms) PRICE (Dollars per ton) Supply (40 firms) Demand HEHEHE 0 125 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of tons) If there were 30 firms in this market, the short-run equilibrium price of steel would be $ would . Therefore, in the long run, firms would per ton. At that price, firms in this industry 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.
Consider the competitive market for steel. Assume that, regardless of
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. COSTS (Dollars per ton) + MC D AVC OF 0 5 10 40 45 50 15 20 25 30 35 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 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. Supply (20 firms) Supply (30 firms) PRICE (Dollars per ton) Supply (40 firms) Demand HEHEHE 0 125 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of tons) If there were 30 firms in this market, the short-run equilibrium price of steel would be $ would . Therefore, in the long run, firms would per ton. At that price, firms in this industry 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.
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