Question

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 80 72 64 56 48 40 32 O 24 T TC n 16 t AVC MC 0 4 812 16 20 2428 32 36 40 QUANTITY (Thousands of pounds)

If there were 10 firms in this market, the short-run equilibrium price of copper would be $___ per pound. At that price firms in this industry would (shut down / operate at a loss / earn zero profit / earn a positive profit). Therefore, in the long run firms would (enter / exit / neither enter nor exit) the copper market.

Because you know that competitive firms earn (positive / zero / negative) economic profit in the long-run equilibrium price must be $___ per pound. From the graph, you can see that this means there will be (10 / 20 / 30) firms operating in the copper industry in long-run equilibrium.

Answer 1

P	QS-10	QS-20	QS-30
20	240000	480000	720000
36	300000	600000	900000
44	320000	640000	960000
52	340000	680000	1040000
72	380000	760000	1140000

The firm will produce as long as P is equal to or above AVC.

Find the quantity supplied by a single firm by setting P=MC

Quantity supplied by 10,20 and 30 firms are shown in the table above

80 T 72 64 O 56 a 48 2 40 32 24 16 Supply (10 firms) Supply (20 firms) Supply (30 firms) 0 120 240 360 480 600 720 840 960 1080 1200 QUANTITY (Thousands of pounds) 1

If there were 10 firms in this market, the short-run equilibrium price of copper would be $52 per pound. At that price firms in this industry would (earn a positive profit). Therefore, in the long run firms would (enter) the copper market.

Because you know that competitive firms earn ( zero) economic profit in the long-run equilibrium price must be $44 per pound. From the graph, you can see that this means there will be (20 ) firms operating in the copper industry in long-run equilibrium.

The last statement is True

Answer 2

If there were 20firms in this market the shot run equilibrium price of copper would be

Answer 3

Correction: Everything is correct besides the point (1020,52) for (QS-30,P)