Consider the competitive market for titanium. Assume that, regardless of how man
ID: 1222355 • Letter: C
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.
The following diagram shows the market demand for titanium.
If there were 60 firms in this market, the short-run equilibrium price of titanium would be __???__ per pound. At that price, firms in this industry would (earn a positive profit / operate at a loss / earn zero profit / shut down). Therefore, in the long run, firms would (enter / exit / neither enter nor exit) the titanium market. Because you know that competitive firms earn selector (zero / negative / positive) economic profit in the long run, you know the long-run equilibrium price must be __???___. From the graph, you can see that this means there will be selector (20 / 40 / 60) firms operating in the titanium industry in long-run equilibrium.
True or False: Each of the firms operating in this industry in the long run earns positive accounting profit.
80 T 72 64 6 56 ATC 48 e Ai ts 32 O 24 16 AVC 0 3 6 9 12 1518 21 24 27 30 QUANTITY (Thousands of pounds)Explanation / Answer
If there were 60 firms in this market, the short-run equilibrium price of titanium would be _40__per pound. At that price, firms in this industry would operate at a loss . Therefore, in the long run, firms would exit the titanium market. Because you know that competitive firms earn selector negative economic profit in the long run, you know the long-run equilibrium price must be __52__. From the graph, you can see that this means there will be selector 20 firms operating in the titanium industry in long-run equilibrium.
Each of the firms operating in this industry in the long run earns positive accounting profit.-False They earn zero economic profits.