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 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) + MC O AVC 0 5 45 50 10 15 20 25 30 35 40 QUANTITY (Thousands of pounds) The following diagram shows the market demand for titanium. 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.

Answer 1

P	QS-1 FIRM	QS-20 FIRMS	30 FIRMS	40 FIRMS
10	0	0	0	0
15	15000	300000	450000	600000
30	20000	400000	600000	800000
40	22500	450000	675000	900000
70	27500	550000	825000	1100000
90	30000	600000	900000	1200000

Supply (20 firms) Supply (30 firms) PRICE (Dollars per pound) Supply (40 firms) Demand 0 125 1125 1250 250 375 500 625 750 875 1000 QUANTITY (Thousands of pounds)

Blanks-

1) 40

2) produce

3) enter

4) zero

5) 30

6) 30

True