Question

Please help me answer this economics question concerning graphing.

Consider the perfectly 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 80 72 64 48 D 40 32 24 16 AVC MC 0 3 69 12 15 18 21 24 27 30 QUANTITY (Thousands of pounds) Session

Answer 1

Rising segment of the MC curve is firm's Supply curve.

Industry supply curve is horizontal summation of individual supply curves.

Price	Q(individual firm)	Q supplied(20 firms)	Q supplied (40 firms	Q supplied (60firms)
4	8	160	320	480
16	12	240	480	720
40	15	300	600	900
52	16	320	640	960
64	17	340	680	1020
80	18	360	720	1080

Graphs

Supply C40) 60 Long Ruw 52

1) 60 firms, equilibrium price: 40 $

( Bcoz supply curve of 60 firms cut demand curve at P= 40

2) firms in the industry would be earning losses

( As at P= 40, MC is below ATC, so firms earning loss)

3) in long run, firms would exit the industry.

4) perfectly competitive firms would earn zero Economic profit

5) long run price will be: 52

( Bcoz at this price, MC = ATC)

6) number of firms :20

( At P = 52, supply curve of 20 firms cut the demand curve)