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. 100 T 90 - 80 60 50 40 30 20 0 5 10 15 20 25 30 35 4045 50 QUANTITY (Thousands of pounds) The following diagram shows the market demand for titanium.

Answer 1

Answer:

Price	Qs(1 firm)	Qs(20 firm)	Qs(30 Firm)	Qs(40 firm)
10	10	200	300	400
15	15	300	450	600
30	20	400	600	800
40	22.5	450	675	900
70	27.5	550	825	1100
90	30	600	900	1200

100 T 90 T Supply (20 firms) 80 T 70 Supply (30 firms) 60 e 40 Supply (40 firms) 30 20 10 0 125 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of pounds)

If there were 20 firms in this market, the short-run equilibrium price of titanium would be $40 per pound. At that price, firms in this industry would make an economic profit (P > ATC i.e 40>30). Therefore, in the long run, firms would enter the titanium market.

Because you know that competitive firms earn zero economic profit in the long run, you know the long-run equillibrium price must be $30 per pound (P = ATC) . From the graph, you can see that this means there will be 30 firms operating in the titanium industry in long-run.

False

If implicit cost is positive than firm earn accounting profit in long run