7. Short-run supply and long-run equilibrium Consider the competitive market for steel. 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. ? 100 90 80 70 50 COSTS (Dollars per ton) 50 40 ATC 30 20 10 MC AVC 0 0 10 90 100 20 30 40 50 00 70 80 QUANTITY (Thousands of tons) The following diagram shows the market demand for steel, 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 -0- 90 80 Supply (10 firms) 70 60 Supply (15 firms PRICE (Dollars per ton) 50 40 Supply (20 firms) Demand 30 20 10 0 0 125 250 375 600 625 750 875 1000 1125 1250 QUANTITY (Thousands of tons) 00 Supply (15) PRICE (Dollars per 40 Supply (20 firma) Demand 30 20 TO 0 0 125 250 375 500 025750 875 1000 125 1250 QUANTITY (Thousands of tons) If there were 10 firms in this market, the short-run equilibrium price of steel would be Therefore, in the long run, firms would per ton. At that price, firms in this industry would the steel market Because you know that competitive firms eam economic profit in the long run, you know the long-run equilibrium price must be per ton. From the graph, you can see that this means there will be firms operating in the steel 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 negative accounting profit True False