Question

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.

 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 20 firms. Finally, use the green points (triangle symbol) to plot the short- run industry supply curve when there are 30 firms.

 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

Answer 1

The rising portion of MC above the point at which it intersects the minimum AVC is the supply curve for 1 firm. Find the supply curve for n = 10, 20 and 30 firms

Price	Quantity (single firm)	Quantity (n=10)	Quantity (n=20)	Quantity (n=30)
20	24000	240000	480000	720000
36	30000	300000	600000	900000
44	32000	320000	640000	960000
52	34000	340000	680000	1020000
72	38000	380000	760000	1140000