Market level with the change in raw steel

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Recently, the spot market price of U.S. hot rolled steel plummeted to $400 per ton. Just one year ago, this same ton of steel cost $700. According to Metals Monitor, the drop in price was due to falling oil prices, along with a rise in cheap imports and excess capacity. These dramatic market changes have greatly impacted the supply of raw steel. Suppose that last year the supply for raw steel was QSraw = 600 + 4P, but this year it has shifted to QSraw = 4,200 + 4P. Assuming the market for raw steel is competitive and that the current worldwide demand for steel is Qdraw = 9,000 - 8P, compute the equilibrium price and quantity for the steel market one year ago, and the equilibrium price-quantity combination for the current steel market. Suppose the cost function of a representative steel producer is C(Q) = 1,200 + 15Q2.

Compare the change in the quantity of raw steel exchanged at the market level with the change in raw steel produced by a representative firm.

How do you explain this difference? Show work

Reference no: EM132587684

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