Question

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 identi 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) AVC мс о OFFFFF 0 3 6 9 12 15 18 21 24 QUANTITY (Thousands of pounds) 27 30

Answer 1

Aprofit maximizing perfectly competitive firm produces at the point where price = me. I'm short bun, each firm's supply curve is the missing position of me above minimum Ave. Short pun supply cupre of a firm posice ($/pound) 80 527 407 12 15 16) 18 17 & Guantity (thousands nof pounds of each bly curve is the hanizontal summation individual's supply function, price ($/ pound surple Supply (20 Arms (40 Firms) supply ICGO firms) 64 52 40 Demand 240 300 480 600 120 goo. 340 6400 Quantity (thausands of pounds

TIL there were 20 firms in this market, the SR equilibrium price of titanium would be $64 per pound. When price = $64/pound, price > ATC at the possfit maximizing output level. It means at that price, firms in this industry Would earn positive economic profit. Therefore in the LR Finsens would exit enter the Titanium market. Because you know the competitive firms earn. Reno economic profit in the LR Cim LR equilibriu each firm produces at the point where price = minimum ATC, so that at pose fit maximizing Couleut level, price ATC on TR - TO and profit = 0, you know the LR equilibrium price must be $52 per pound from the graph, You can see that this means there will be 40 firms operating in LR equilibrium, If implicit costs are positive, each of the fisoms apeporting in the industry in LR carns positive accounting porofit. Therefore, the given stalement is fake. ha