Question

Please label coordinates to graph in (x,y) format for supply 10 firms, supply 15 firms, and supply 20 firms as well please.

for last statement options are

firms in this industry would (earn a positive profit, shut down, operate at a loss, earn zero profit)

in the long run, firms would (enter, exit, neither enter nor exit)

competetive firms earn (positive, negative, zero)

this means there will be (10, 15, 20)

5. Short-run supply and long-run equilibrium Consider the competitive market for titanium. 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. 7 100 T 80 30 20 102030405060708090100 QUANTITY (Thousands of pounds)

Answer 1

In the short run, firms aim at covering only their average cost and are ready to bear to cost of the fixed assets. Therefore, in the short run, the supply curve of the firm is the upward sloping Marginal Cost (MC) curve, which is above the Average Variable Cost (AVC) curve. Therefore, at different price levels, the quantity supplied are as follows: Price (P) Supply of 1 firm in thousands of pounds) 10 20 30 When N = 10, N = 15, N = 20, the supplies can be calculated by multiplying the quantity supplied by 1 firm by 10, 15 and 30 respectively, as follows: Price (P) Supply of 1 firm (in thousands of pounds) Supply (10 firms) Supply (15 firms ) Supply (20 firms) 200 300 400 300 600 400 450 600 675 45 450 350 800 900 1100 1200 825 600 900 The supply curves at different number of firms can be shown in the graph like given below:

Price Demand 0 125 250 375 500 750 875 1000 1125 1250 625 Quantity - Supply (10 firms) - Supply (15 firms ) - Supply (20 firms) If there are 10 firms in the market, the short run equilibrium price of good would be $40 (Since demand and supply interacts at the point where price is equal to $40) per pound. At that price, firms in this industry would earn a positive profit (since the price is more than the average total cost which can be seen in the given diagram) Therefore, in the long run, firms would enter the titanium market. Because you know that perfectly competitive firms earn zero economic profit in the long run, you know the long-run equilibrium price must be $30 (where the marginal cost curve is equal to the average total cost curve) per pound. From the graph, you can see that this means there will be 15 firms operating in the titanium industry in the long run equilibrium.