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.

 The following diagram shows the market demand for copper.

 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.

 If there were 30 firms in this market, the short-run equilibrium price of copper would be _______  per pound. At that price, firms in this industry would _______ . Therefore, in the long run, firms would

 _______ the copper market.

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

 True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit.

Answer 1

Answer:

A firm will supply as long as Price is equal to or more than its average variable cost

Setting P=MC, the quantity supplied by a single firm and 20,30and 60 firms is as follows:

Price	Qs(1 Firm)	Qs(20 Firm)	Qs(30 Firm)	Qs(40 Firm)
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

If there were 30 firms in this market, the short run equilibrium price of copper would be $ 40 per pound. At that price, firms in this industry would earn a positive profit (P > ATC). 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 you know the long run equilibrium price must be $30 which means there will be 40 firms operating in the long run.

The statement is Rrue