Question

deriving the short-run supply curve.

consider the competitive market for sports jackets. The following graph shows the marginal cost (MC), average total cost (ATC) and average variable cost (AVC) curves for a typical firm in the industry.

Answer 1

From the graph, the number of jackets, the decision to producer or shut down and the decision to profit or loss is given below: Price tity (in thousands) Produce or shut-down Profit or loss 15 20 Shut-down Loss Shut -down Loss 25 0 or 45 Indifferent Loss Produce Break-even 60 70 65 Produce Profit 85 70 Produce Profit The short-run supply curve is shown below: (quantity written in brackets are in thousands) 100 Short-run supply curve 90 (P S85, Q-70) 80 70 (P- $70, Q 65) 60 (P S55, Q 60) 50 40 30 (P-$25, Q = 45) 20 10 10 20 30 40 50 60 70 80 90 Quantity Suppose there are 7 firms in the industry. The positive output produced by 7 firms in the industry correspond to price is shown below: titv Indu ustry output in thousands Price 315 25 45 55 60 420 455 490 70 65 85 70

The short-run supply curve of the industry is shown below: (quantity written in brackets are in thousands) 100 0 Damand (P $85, Q-490) 80 70 (P $70, Q-455 P-S55, Q 420) 50 40 30 P $25, Q- 315) 20 10 0 70 140 210 280 350 420 490 560 630 700 QUANTITY (Thousands of jak The equilibrium price is S55, and the equilibrium output is approximately 420 (in thousand). At this price, the firm will produce in the short-run. In the long-run, firms will neither enter nor exit because the equilibrium price is equal to ATC