5. Short-run supply and long-run equilibrium Consider the competitive market for rhodium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph. COSTS (Dolars per pound) 8 2 2 2 28 ATC 30, 15 10 MC- AVC D ° 10 20 30 40 50 60 70 80 100 QUANTITY (Thousands of pounds) The following graph plots the market demand curve for rhodium. PRICE (Dollars per pound) 8 10 100 90 80 00 50 ф ° 125 ° Supply (10 firms) Supply (15 firms) Supply (20 firms) Demand 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) If there were 10 firms in this market, the short-run equilibrium price of rhodium would be S would Therefore, in the long run, firms would Because you know that competitive firms earn, per pound. At that price, firms in this industry the rhodium market. economic profit in the long run, you know the long-run equilibrium price must be per pound. From the graph, you can see that this means there will be firms operating in the rhodium 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. O True False

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Firms In Competitive Markets

Section: Chapter Questions

Problem 8PA

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Short-run supply and long-run equilibrium Consiber the competitive market for rhodium. Assume that no matter how many firms operate in the induatry, every firm is identical and faces the same marpinal cost (MC), averapt total cost (ATC), and average variable cost (AVC ) curves plotted in the following praph. The following graph plots the market demand curve for thodium. If there were 10 firms in this market, the short-run equilibrium price of rhodium would be per pound. At that price, firms in this industry would. Therefore, in the long run, firms would the rhodium market. Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must be per pound. From the graph, you can see that this means there will be firms operating in the rhodium 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