Question

Consider a perfectly competitive market for titanium. Assume that all firms in the industry are identical and have the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves shown on the following graph. Assume also that it does not matter how many firms are in the industry Tool Tip: Place the mouse cursor over orange square points on the MC curve to see coordinates. COST PER UNIT IDollars per pound) 10 MC ATC AVC 0 5 10 15 20 26 30 36 40 45 50 QUANTITY OF OUTPUT Thousands of pounds ner da Initial short-run Industry supply curve when there are 20 firms in the market. (Note: Ignore the portion of the supply curve that corresponds to prices at which 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 red points (cross symbol) to plot the short-run industry supply curve when there are 40 firms PRICE IDollars per poundl 10 Supply 120 firmsl) Supply 130 firms Supply 140 firms) Demand 0 200 400 600 800 1000 1200 1400 1600 QUANTITY lThousandsat pounds ptrday) En I-AL) With 30 firms in this market, the short-run equilibrium price of titanium would be price, firms in this industry would per POound. At that Theretore, in the long run, firms would the titaniurn market. Because you know that perfectly competitive firms ean the long-run equilibrium price must be will be economic profit in the long run, you know per pound. From the graph, you can see that this means there firms operating in the titanium industry in long-run equilbrium. Supply 130 firms) firms Demand 00 600 800 1000 1200 1400 1600 ANTITY IThousands of pounds per day) Hele Clear All this market, the short-run equilibrium price of titanium would be . Therefore, in the long his industry would the tioperate at a loss earn a positive profit shut down earn zero profit now that perfectly dur, 'Pv.wrm" mrvurm economic pro per pound. From the graph, you quilibrium price must be firms operating in the titanium industry in long-run equilibrium. 0 200 400 00 800 1000 1200 1 QUANTITY ITheusands of pounds p With 30 firms in this market, the short-run price, firms in this industry would the titanium má enter exit neither enter nor exit ectly competitive the long-run equilibrium price must be will be firms operating in the titaniu mant 400 10D t-run equilibrium price of titanium would be . Therefore, in the long ru um market mpetitive firms earn economic profit in *1 be per positive e graph, you can s the titanium industr negative uilibrium. zero Camand 0 200 400 600 800 1000 1200 1440 1400 QUANTITY ITheusands of pounds per day! With 30 firms in this market, the short-run equilibrium price, firms in this industry would the titanium market. Because you know that perfectly competitive firms earn the long-run equilibrium price must be $1.50 per will be 40 firms operating in the titanium industry 40 30 20

Answer 1

Price per pound $	Quantity (thousands of pounds per day)	market supply by 20 firms (thousands of pounds per day)	market supply by 30 firms (thousands of pounds per day)	market supply by 40 firms (thousands of pounds per day)
1.50	15	300	450	600
2.50	20	400	600	800
4.00	25	500	750	1000
6.00	30	600	900	1200
9.00	35	700	1050	1400
Minimum AVC is $1.50 per pound, we can see this from the graph given. The MC above minimum AVC is the supply curve of the firm.
If there are 20 firms, multiply the quantity supplied by each firm by 20, for 30 firms multiply by 30 and if there are 40 firms multiply by 40.
If there were 30 firms in this market, the short-run equilibrium price would be $6 per pound. This is at the intersection of demand and supply curves. At that price, firms in this industry would Earn a positive profit (Shut down,Operate at a loss, Earn zero profit, Earn a positive profit). Because equilibrium price of $ 6 per pound is more than ATC which is $ 4 per pound ( you can see this from the graph). Therefore, in the long run, firms would Enter (Enter,Exit,Neither enter nor exit) the market. Because of the positive economic profit. Because you know that competitive firms earn Zero (Positive,Negative,Zero) economic profit in the long run, you know the long-run equilibrium price must be[$ 4 ]per pound. From the graph, you can see this means there will be 40 firms operating in the industry in the long run. Long run profit maximization for a perfectly competitive firm is MC=MR=ATC. MR=P for a competitive firm. (Dolaus 9,/0nD 9,1406 unr 4.SeD 450 2. 2,5p AUF 200 4o0 Jemand aanhhy Cheunande pounds J200