Solved: According to the American Metal Markets Magazine

the spot market

According to the American Metal Markets Magazine the spot market

According to the American Metal Markets Magazine, the spot market price of U. S. hot rolled
steel recently reached $ 600 per ton. Less than a year ago this same ton of steel was only $
300. A number of factors are cited to explain the large price increase. The combination of
China’s increased demand for raw steel— due to expansion of its manufacturing base and
infrastructure changes when preparing for the 2008 Beijing Olympics— and the weakening U. S.
dollar against the euro and Yuan partially explain the upward spiral in raw steel prices. Supply-
side changes have also dramatically affected the price of raw steel. In the last 20 years there
has been a rapid movement away from large integrated steel mills to mini- mills. The mini- mill
production process replaces raw iron ore as its primary raw input with scrap steel. Today, mini-
mills account for approximately 52 percent of all U. S. steel production. However, the worldwide
movement to the mini- mill production model has bid up the price of scrap steel. In December,
the per- ton price of scrap was around $ 140, and it soared to $ 285 just two months later.
Suppose that, as a result of this increase in the price of scrap, the supply of raw steel changed
from Qs raw 4,400 4P to Qs raw = 800 + 4P. Assuming the market for raw steel is competitive
and that the current worldwide demand for steel is Qdraw = 4,400 + 8P, compute the
equilibrium price and quantity when the per- ton price of scrap steel was $ 140, and the
equilibrium price–quantity combination when the price of scrap steel reached $ 285 per ton.
Suppose the cost function of a representative mini- mill 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?

According to the American Metal Markets Magazine the spot market

ANSWER
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