Question

7. Short-run supply and long-run equillbrium Consider the competitive market for steel. 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 90 27.5, 70 80 70 30 20 AVC 10 0s10 1520 25 30 35 40 45 QUANTITY (Thousands of tons) The following diagram shows the market demand for steel.

Answer 1

Price Quantity No. of firms Industry Supply Qty x No. of firms 200 300 400 10 10 30 27 600 30 Price Quantity No. of firms Industry Supply Qty x No. of firms 30 30 30 30 30 30 300 450 600 660 810 900 10 10 30 27 30 Price Quantity No. of firms Industry Supply Qty x No. of firms 400 600 800 880 1080 1200 10 10 30 27 30

100 90 80 o 70 s 60 2 50 40 C 30 20 10 Supply (20 firms) Supply (30 firms) Supply (40 firms) Demand 0 125 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of pounds)

1) $ 40

2) Earn positive profit

3) Enter

4) zero

5) $ 30

6) 40 firms

7) True