PRICE (Dollars per pound)
Consider the competitive market for rhenium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the
same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph.
COSTS (Dolars per pound)
88
8,4
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 te 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 (trangle symbol) to
plot the short-run industry supply curve when there are 30 firms.
Supply (10 Sems)
Supply (20 frms)
A
Supply (30 firms)
If there were 30 firms in this market, the short-run equilibrium price of rhenium would be $
would
Therefore, in the long run, firms would
Because you know that competitive firms earn
per pound. At that price, firms in this industry
the rhenium market.
economic profit in the long run, you know the long-run equilibrium price must be
per pound. From the graph, you can see that this means there will be
firms operating in the rhenium industry in long-run equilibrium.
True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns negative accounting profit.
True
False
