If a competitive firm's marginal cost curve is U-shaped, then:
A) its short-run supply curve is U-shaped too
B) its short-run supply curve is the downward-sloping portion of the marginal cost curve
C) its short-run supply curve is the upward-sloping portion of the marginal cost curve
D) its short-run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short-run average variable cost curve
E) its short-run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short-run average total cost curve

Question

Quizplus · Accepted Answer

In the short run, a firm's supply curve is determined by comparing the market price to its marginal cost. Since the marginal cost curve is U-shaped, the portion that lies above the short-run average variable cost curve is the portion where the firm is willing to produce output to supply the market at the given price. Therefore, the short-run supply curve for a competitive firm with a U-shaped marginal cost curve is the upward-sloping portion of the marginal cost curve that lies above the short-run average variable cost curve, which is answer choice D.

If a Competitive Firm's Marginal Cost Curve Is U-Shaped, Then