7. Short-run supply and long-run equilibrium Consider the competitive market for ruthenium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph. 80 72 64 56 48 ATO COSTS (Dollars per pound) 40 32 24 16 AVC MC O Co 4 8 12 16 20 24 28 32 36 40 QUANTITY (Thousands of pounds)The following graph plots the market demand curve for ruthenium. Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 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 20 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 30 firms. 80 -O 72 Supply (10 firms) 64 56 48 Demand Supply (20 firms) PRICE (Dollars per pound) 40 32 Supply (30 firms) 24 16 0 0 120 240 360 480 600 720 840 960 1080 1200 QUANTITY (Thousands of pounds)If there were 20 firms in this market, the shortrun equilibrium price of ruthenium would be- per pound. At that price, rms in this industry would V . Therefore, in the long run, firms would V the ruthenium market. Because you know that competitive firms earn V economic profit in the long runr you Know the longrun equilibrium price must be per pound. From the graph, you can see that this means there will be V rms operating in the ruthenium industry in longrun equilibrium. True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns negative accounting profit. 0 True O False If there were 20 firms in this marketr the shortrun equilibrium price of ruthenium would be per pound. At that price, rms in this industry would V . Therefore, in the long run, firms would V the ruthenium market. ShUt down titiye firms earn V economic profit in the long run, you know the longrun equilibrium price must be operate at a loss e graph, you can see that this means there will be V rms operating in the ruthenium industry in longrun earn a positive profit eam zero profit it costs are positive, each of the firms operating in this industry in the long run earns negative accounting profit. O TnJe O False If there were 20 firms in this market, the shortrun equilibrium price of ruthenium would be- per pound. At that price, rms in this industry would V . Therefore, in the long mm firms would V the ruthenium market. enter Because you know that competitive firms earn V economic pro' ow the long-run equilibrium price must be per pound. From the graph, you can see that this means there wi exit g in the ruthenium industry in longrun equilibrium. neither enter l'll' exit True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns negative accounting prot. 0 True O False If there were 20 firms in this market. the shortrun equilibrium price of ruthenium would be- per pound. At that price, rms in this industry would V . Therefore, in the long run, firms would V the ruthenium market. Because you know that competitive firms earn V economic profit in the long runr you know the longrun equilibrium price must be per pound. From the graph. you can equilibrium. is means there will be v rms operating in the ruthenium industry in longrun negative positive True or False: Assuming implicit costs are posi- the firms operating in this industry in the long run earns negative accounting profit. zero 0 True 0 False If there were 20 firms in this market. the shortrun equilibrium price of ruthenium would be per pound. At that price, rms in this industry would V .Therefore, in the long mn, firms would V the ruthenium market. Because you know that competitive firms earn V economic profit in the long runr you know the longrun equilibrium price must be per pound. From the graph. you can see that this means there will be] V rms operating in the ruthenium industry in longrun equilibrium. True or False: Assuming implicit costs are positive, each of the firms operating in ustry in the long run earns negative accounting profit. 0 O False 8. Short-run and long-run effects of a shift in demand Suppose that the tempeh industry is initially operating in long-run equilibrium at a price level of $5 per pound of tempeh and quantity of 150 million pounds per year. Suppose a leading foodie video blogger raises awareness for a scholarly article that links tempeh consumption to premature hair loss and unhealthy skin. The viral video is expected to cause consumers to demand * tempeh at every price. In the short run, firms will respond by Shift the demand curve, the supply curve, or both on the following graph to illustrate these short-run effects of the viral video. ? 10 O Supply Demand Co Supply PRICE (Dollars per pound) Demand N 0 30 60 90 120 150 180 210 240 270 300 QUANTITY (Millions of pounds)The viral video is expected to cause consumers to demand A tempeh at every price. In the short run, firms will respond by less Shift the demand curve, the supply curve, or both on the fo more graph to illustrate these short-run effects of the viral video.The viral video is expected to cause consumers to demand tempeh at every price. In the short run, firms will respond by producing the same amount of tempeh and running at a loss aph to illustrate these short-run effects of the viral video. producing more tempeh and earning positive profit exiting the industry producing the same amount of tempeh and earning positive profit entering the industry O producing less tempeh and running at a loss Demand 8In the long run, some firms will respond by until Shift the demand curve, the supply curve, or both on the following graph to illustrate both the short-run effects of the viral video and the new long- run equilibrium after firms and consumers finish adjusting to the news. 10 O Supply Demand Supply PRICE (Dollars per pound) Demand N 30 60 90 150 180 210 240 270 300 QUANTITY (Millions of pounds)In the long run, some firms will respond by until entering the industry Shift the demand curve, the supply curve, or exiting the industry ort-run effects of the viral video and the new long- run equilibrium after firms and consumers fir producing less tempeh and running at a loss producing less tempeh and earning positive profit producing more tempeh and running at a loss producing more tempeh and earning positive profit 10 Supply Demand Supply 5 PRICE (Dollars per pound) W Demand N 0 30 60 90 120 150 180 210 240 270 300 QUANTITY (Millions of pounds)In the long run, some firms will respond by V until consumer demand returns to its original level g graph to illustrate both the shortrun effects of the Viral video and the new long tempeh populations grow large enough to support more firms news. new technologies are discovered that lower costs ('3 each firm in the industry is once again earning zero prot SUP\" Demand Supply PRICE (Dollars per pound] D 30 60 90 120 150 130 210 240 270 300 QUANTITY (Millions of pounds) PRICE (Dollars pe Demand vertical 0 upward sloping 30 60 90 120 150 180 210 240 270 300 QUANTITY (Millions of pounds) horizontal downward sloping The new equilibrium price and quantity suggest that the shape of the long-run supply curve in this industry is in the long run