7. Short-run supply and long-run equilibrium Consider the perfectly 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. 100 90 80 COSTS (Dollars per pound) 8 50 2 8 70 60 ATC 20 10 MC-O AVC 5 10 15 20 25 30 35 40 45 QUANTITY OF OUTPUT (Thousands of pounds) 50 The following diagram shows the market demand for copper. Use the orange points (square symbol) to plot the 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. PRICE (Dollars per pound) 50 382 2 3 3 3 2 2 100 00 20 -D- Supply (20 firms) Supply (30 firms) 40 Demand Supply (40 firms) 10 123 250 373 500 623 750 873 1000 1123 1250 QUANTITY OF OUTPUT (Thousands of pounds) If there were 20 firms in this market, the short-run equilibrium price of copper would be S . Therefore, in the long run, firms would would Because you know that perfectly competitive firms earn be S equilibrium. per pound. At that price, firms in this industry the copper market. economic profit in the long run, you know the long-run equilibrium price must firms operating in the copper industry in long-run per pound. From the graph, you can see that this means there will be True or False: Each of the firms operating in this industry in the long run earns positive accounting profit. O True False 7. Short-run supply and long-run equilibrium Consider the perfectly 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. 00 100 8 90 80 70 COSTS (Dollars per pound) 60 50 40 ATC 30 20 10 MC- AVC a 0 $ 10 15 20 25 30 35 40 45 50 QUANTITY OF OUTPUT (Thousands of pounds ? Use the orange points (square symbol) to plot the 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 PRICE (Dolars per pound) 888888 g 20 10 0 Supply (20 ms) Supply (30 firms) Supply (40 firms) Demand 125 250 373 500 623 750 873 1000 1123 1250 QUANTITY OF OUTPUT (Thousands of pounds) ? If there were 20 firms in this market, the short-run equilibrium price of copper would be Therefore, in the long run, firms would would Because you know that perfectly competitive firms earn be 5 equilibrium. per pound. At that price, firms in this industry the copper market economic profit in the long run, you know the long-run equilibrium price must firms operating in the copper industry in long-run per pound. From the graph, you can see that this means there will be True or False: Each of the firms operating in this industry in the long run eams positive accounting profit. True False