Aluminum Industry in 1994: Long Run Supply and Equilibrium
Managerial
Economics
Alp
Atakan

This material is for the exclusive use in MGEC classes at Koc University. No other use is allowed without my permission.

1

Road Map

•
•

Why is the price of Aluminum so Volatile?
• Demand analysis
Long-Run Supply Curve
–
–
–
–
–

Difference between short-run and long-run supply curves
ATC and the exit price
FR-ATC and the entry price
Building the long-run supply curve
What drives the long-run price path in a commodity market?

2

Demand Curve Answers the Question: What Quantity Will be
Demanded at Different Possible Market Prices?
Movements
along a given demand curve tell us how quan4ty demanded changes with respect to changes in the good’s price

Price ($ per unit)

P0

Shi7s in the demand curve tell us how quan4ty demanded changes with respect to changes in demand drivers other than the good’s price
(e.g,
income)

P0

P1

D0

D
X0

X1

Quan?ty
(units
per period)

Measure of sensi4vity: price elas:city of demand

% QD
=
% P

QD /QD dQD P
=
⇥ D
P/P
dP
Q

X0

X2

D1

Quan?ty
(units
per period)

Measure of sensi4vity: other elas:ci:es of demand, e.g., income elas:city of demand

% QD
=
% Y

QD /QD dQD Y
=
⇥ D
Y /Y dY Q
3

Is Price Elasticity Constant along a
Linear Demand Curve?
El
as
?o
or P
?c

1

n

P0

a el In

P1

s?
?o
or c P n Price ($ per unit)

E=