The short-run market supply in a perfectly competitive market is the horizontal summation of the firms' marginal cost curves when

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Quizplus · Accepted Answer

In a perfectly competitive market, firms are price takers and the market price is determined by the intersection of the market demand and supply curves. In the short run, each firm's supply curve is its marginal cost curve above its shutdown point. Therefore, the short-run market supply curve is the horizontal summation of individual firms' marginal cost curves. This is true as long as increases in industry output do not affect input prices, as stated in choice A. If input prices increase, then firms' marginal cost curves will shift upwards, leading to a higher short-run market supply curve. Similarly, if market price increases due to increased demand, firms may expand their output, leading to a higher short-run market supply curve. Therefore, choices B, C, and D are not correct.

The Short-Run Market Supply in a Perfectly Competitive Market Is