Consider the perfectly 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.

$0$

$4$

$8$

$12$

$16$

$20$

$24$

$28$

$32$

$36$

$40$

$80$

$72$

$64$

$56$

$48$

$40$

$32$

$24$

$16$

$8$

$0$

COSTS $($Dollars per ton$)$

QUANTITY OF OUTPUT $($Thousands of tons$)$

MC

ATC

AVC

The following diagram shows the market demand for steel.

Use the orange points $($square symbol$)$ to plot the 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.

Supply $(10$ firms$)$

Supply $(20$ firms$)$

Supply $(30$ firms$)$

$0$

$120$

$240$

$360$

$480$

$600$

$720$

$840$

$960$

$1080$

$1200$

$80$

$72$

$64$

$56$

$48$

$40$

$32$

$24$

$16$

$8$

$0$

PRICE $($Dollars per ton$)$

QUANTITY OF OUTPUT $($Thousands of tons$)$

Demand

If there were $20$ firms in this market, the short$-$run equilibrium price of steel would be

$

per ton. At that price, firms in this industry would $.$ Therefore, in the long run, firms would the steel market.

Because you know that perfectly competitive firms earn 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: Each of the firms operating in this industry in the long run earns negative accounting profit.

True

False