The short-run industry curve is obtained by multiplying the amount that each firm produces by the number of firms in
the industry. For example, at a price of
$6.00,
each firm would produce
30,000
pounds of copper per day. Therefore,
20
firms would supply a total of
600,000
pounds at that price,
30
firms would supply a total of
900,000
pounds, and
40
firms would supply a total of
1,200,000
pounds. To construct the rest of the supply curves, you should perform
similar calculations at prices of
$1.50, $2.50, $4.00,
and
$9.00
per pound.
If there were
40
firms in this market, the short-run equilibrium price of copper would be
$4.00 "
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.
ExpLanation:
Close
A.
The short-run industry supply curve with
40
firms intersects the demand curve at a price of
$4.00
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
$4.00
per pound, they would make just over
-$2.00
per pound x
25,000
pounds
=
$50,000
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.

Scores:
0--
Average: 0/9