7. Short-run supply and long-run equilibrium Consider the competitive market for rhodium. 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. (?) 100 90 COSTS (Dollars per pound) ATC AVC MC O 10 20 30 40 60 80 70 80 90 100 QUANTITY (Thousands of pounds) The following graph plots the market demand curve for rhodium. 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 15 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 20 firms. (?) 100 Supply (10 firms) Supply (15 firms) PRICE (Dollars per pound) Supply (20 firms) Demand 0 125 250 375 500 625 750 976 1000 1126 1250 QUANTITY (Thousands of pounds) If there were 20 firms in this market, the short-run equilibrium price of rhodium would be S per pound. At that price, firms in this industry would . Therefore, in the long run, firms would the rhodium market. Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must be per pound. From the graph, you can see that this means there will be * firms operating in the rhodium 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 positive accounting profit. O True O FalseIf there were 20 firms in this market, the shortrun equilibrium price of rhodium would be per pound. At that price, rms in this industry would V . Therefore, in the long run, rms would V the rhodium market. earn a positive profit Becau -titive firms earn V economic profit in the long run, you know the longrun equilibrium price must be :- earn zero profit 6 graph, you can see that this means there will be V firms operating in the rhodium industry in long-run equilibrium. shut down True 0 it costs are positive, each of the firms operating in this industry in the long run earns positive accounting prot. operate at a loss 0 False If there were 20 firms in this market, the short-run equilibrium price of rhodium would be per pound. At that price, rms in this industry would V . Therefore, in the long run, rms would V the rhodium market. enter Because you know that competitive firms earn V economic pro ow the longrun equilibrium price must be per pound. From the graph, you can see that this means there wi exit 9 in the rhodium industry in longrun equilibrium. neither enter nor exit True or False: Assuming implicit costs are positive, each of the firms operati long run earns positive accounting prot. 0 True 0 False If there were 20 firms in this market, the short-run equilibrium price of rhodium would be |$ per pound. At that price, firms in this industry would . Therefore, in the long run, firms would the rhodium market. Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must be $ per pound. From the graph, you can is means there will be _ firms operating in the rhodium industry in long-run equilibrium. zero True or False: Assuming implicit costs are posit negative f the firms operating in this industry in the long run earns positive accounting profit. O True positive O False