Consider the perfectly competitive market for steel. Assume that, regardless of how many firms are in the industry, ever

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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 (AZC), and average variable cost (AVC) curves shown on the following graph. COSTS (Dollars per tonne) 100 90 80 P829882 70 එය 43 30 20 MO ATC AVC #1 E C

O 0 9 10 15 20 25 30 40 QUANTITY (Thousands of tonnes) The following diagram shows the market demand for steel. 10 Use the orange points (square symbol) to plot the initial 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 plat the short-run industry supply curve when there are 40 firms Note: Points will snap to the quantities of output ING

P Note: Points will snap to the quantities of output PRICE (Dollars per torne) 88228892 100 00 30 20 10 0 Demand 0 123 250 373 500 623 750 873 1000 1123 1250 QUANTITY (Thousands of tonnes) Supply (20 firms) Supply (30 firms) Supply (40 firms) OL LC

10 D 0 123 250 373 500 123 750 #7 1000 1123 1200 QUANTITY (Thousands of tonnes) If there were 20 firms in this market, the short-run equilibrium price of steel would be 5 Therefore, in the long run, firms would Because you know that perfectly competitive firms earn be S economic profit in the long run, you know the long-run equilibrium price must per tonne. From the graph, you can see that this means there will be firms operating in the steel industry in long-run equilibrium. per tonne. At that price, firms in this industry would the steel market. True or False: Each of the firms operating in this industry in the long run earns positive accounting profit. O True False Grade It Now Save & Continue