7. Short-run supply and long-run equilibrium

Consider the competitive market for copper. 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.The following diagram shows the market demand for copper.

Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 20 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where 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 green points (triangle symbol) to plot the short-run industry supply curve when there are 40 firms.

If there were 20 firms in this market, the short-run equilibrium price of copper would beper pound. At that price, firms in this industry would . Therefore, in the long run, firms would the copper market.

Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must beper pound. From the graph, you can see that this means there will be firms operating in the copper industry in long-run equilibrium.

True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positiveaccountingprofit.

True

False

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