Question

What identical and faces the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves shown on the following graph. 100 30,90 90 80 70 60 COSTS (Dollars per pound) 50 ATC 20 AVC 10 0 5 45 50 10 15 20 25 30 35 40 QUANTITY (Thousands of pounds)

Answer 1

Short run supply curve is the portion of MC above the minimum point of AVC. And we can see that minimum AVC = $15 . Therefore, supply curve is the portion of MC above $15 .

To plot the supply curve for 20, 30 and 40 firms . Firstly, make the table :

Price (Dollars per pound)	Quantity (in thousands of pounds)	Supply of 20 firms (in thousands of pounds)	Supply of 30 firms (In thousands of pounds)	Supply of 40 firms (in thousands of pounds)
15	15	(20)(15)=300	(30)(15)=450	(40)(15)=600
30	20	(20)(20)=400	(30)(20)=600	(40)(20)=800
40	22.5	(20)(22.5)=450	(30)(22.5)=675	(40)(22.5)=900
70	27.5	(20)(27.5)=550	(30)(27.5)=825	(40)(27.5)=1100
90	30	(20)(30)=600	(30)(30)=900	(40)(30)=1200

By plotting these points, we get the supply curve for 20, 30 and 40 firms as shown in the figure below:

Price (Dollars per Pound) Too go A sro S30 sus 70 be so yo 30 20 Demand A le o 125 200 375 560 625 750 875 1000 1125 1250 Quantity (Thousands of funds

We can see from the figure: If there are 30 firms in this market, the short run equilibrium price of titanium is where Demand curve intersect supply curve for 30 firms. Therefore, equilibrium price for 30 firms would be $40 per pound . At this price ,firms in this industry would earn positive profit because P>ATC. Therefore,in the long run, firms would enter in the titanium market.

Because we know that competitive firms earn zero economic profit in the long run, you know the long run equilibrium price must be $30 per pound (because in the long run , price should be equal to minimum ATC). From the graph, we can see that this means there will be 40 firms operating in the titanium industry in the long run equilibrium (because $30 per pound is the equilibrium price of 40 firms).