The following diagram shows the market demand for copper. 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 90 80 PRICE (Dollars per pound) 8 20 10 0 0 125 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) Demand 0 & 4 True Supply (20 firms) False Supply (30 firma) If there were 30 firms in this market, the short-run equilibrium price of copper would be s would Therefore, in the long run, firms would Supply (40 firms) ? Because you know that competitive firms eam 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 copper industry in long-run equilibrium. per pound. At that price, firms in this industry the copper market. True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit.
The following diagram shows the market demand for copper. 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 90 80 PRICE (Dollars per pound) 8 20 10 0 0 125 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) Demand 0 & 4 True Supply (20 firms) False Supply (30 firma) If there were 30 firms in this market, the short-run equilibrium price of copper would be s would Therefore, in the long run, firms would Supply (40 firms) ? Because you know that competitive firms eam 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 copper industry in long-run equilibrium. per pound. At that price, firms in this industry the copper market. True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit.
Chapter8: Perfect Competition
Section: Chapter Questions
Problem 2.4P
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1
Transcribed Image Text:7. Short-run supply and long-run equilibrium
Consider the competitive market for copper. 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 pound)
100
90
80
70
60
50
40
30
20
10
0
0
MCO
5
ATC
AVC
D
10 15 20 25 30 35
QUANTITY (Thousands of pounds)
40
45 50
Transcribed Image Text:The following diagram shows the market demand for copper.
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.
PRICE (Dollars per pound)
100
90
80
g S
50
40
S
20
10
0
0 125 250 375 500 625 750 875 1000 1125 1250
QUANTITY (Thousands of pounds).
Demand
Because you know that competitive firms eam
0
True
Supply (20 firme)
If there were 30 firms in this market, the short-run equilibrium price of copper would be $
would
Therefore, in the long run, firms would
False
Supply (30 firms)
Supply (40 firms)
per pound. From the graph, you can see that this means there will be
per pound. At that price, firms in this industry
the copper market.
economic profit in the long run, you know the long-run equilibrium price must be
firms operating in the copper 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.
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