This is complete answers. This is similar but different problem. Please graph an
ID: 2426979 • Letter: T
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This is complete answers.
This is similar but different problem. Please graph and fill in the blanks.
7. Zero economic profit in the long run Aa Aa Consider a perfectly competitive market for titanium. Assume that all firms in the industry are identical and have the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves shown on the following graph Assume also that it does not matter how many firms are in the industry. Tool Tip: Place the mouse cursor over orange square points on the MC curve to see coordinates. COST (Dollars per pound 10 MC ATC AVC 0 5 10 15 20 25 30 35 40 45 50 OUTPUT PER PERIOD IThousands of pounds per day The following diagram shows the market demand for titanium. Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 20 firms in the market. (Note: Ignore the portion of the supply curve that corresponds to prices at which 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 red points (cross symbol) to plot the short-run industry supply curve when there are 40 firms.Explanation / Answer
Answer: With 30 firms in this market,the short-run equilibrium price of copper would be $3.00 " per pound. At that price, firms in this industry would operate at a loss . Therefore, in the long run, firms would exit " the copper market.
he short-run industry supply curve with 30 firms intersects the demand curve at a price of $3.00 per pound of copper. At this price, each firm would produce 25,000 pounds of copper per day at an average total cost of just over $6.00 per pound. Because firms in this industry could sell that copper at $3.00 per pound, they would make just over -$3.00 per pound x 25,000 pounds = $75,000 of loss per day. This negative profit would encourage other firms to exit the copper industry, shifting the supply curve to the left and raising the price of copper until it reaches its long-run equilibrium price.
Becauseyou know that perfectly competitive firms earn zero., profit in the long run, you know the long-run equilibrium price must be $6.00 " per pound. From the graph, you can see that this means there will be 20 firms" operating in the copper industry in long-run equilibrium.
In the long run, firms will enter the industry if they can earn a positive profit, and exit the industry if firms in the industry are running at a loss. In long-run equilibrium, firms have no incentive either to enter or exit the industry, which means that firms in the industry must be earning zero profit.
Because profit per unit is measured by P - ATC, and because perfectly competitive firms produce at the point at which P = MC I firms earn zero profit when P = ATC = Me. Looking at the cost curve diagram above, you can see that this occurs at a price of $6.00 per pound.
From the graph you drew before, you can see that the short-run equilibrium price is $6.00 per pound if there are 20 firms in the copper industry, so $6.00 per pound is the long-run price. Therefore, if there are 20 firms in the industry, firms will have no incentive to enter or exit the market.
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