Question

Consider the competitive market for titanium. 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. 

Answer 1

If there were 20 firms in this market, the short run equilibrium price of titanum would be $15 per pound. At this price , firms in this industry would operating at a loss .Because at $15 , quantity of 20 firms = 600. So, a firm's quantity = 600/20 = 30 thousands of pounds. In the ist figure, we can see when price =$15 per pound, quantity = 30 , We can see P is less than ATC. Therefore, in the long run , firms would exit the titanium market.

Because you know that competitive market firms earns zero economic profit in the long run , you know the long run equilibrium price must be where P=MC = Minimum ATC. And from the ist figure , we can see that it is when P=$30 per pound and quantity = 40 thousands of pounds. This means there will be total 10 firms operating in the titanium industry in long run equilibrium. Because for 10 firms , the equilibrium price is $30 per pound.

FALSE,because  assuming implicit costs are positive , each of the firms operating in this industry in the long run earns positive accounting profit, because accounting profit is greater than economic profit.