The short- run supply curve for a perfectly competitive firm is
A) its entire marginal- cost curve.
B) its marginal- cost curve above the average- variable- cost curve.
C) the industry supply curve.
D) its average- revenue curve.
E) its rising portion of the average- variable- cost curve.

Question

Quizplus · Accepted Answer

In the short run, a perfectly competitive firm will produce as long as its price is greater than or equal to its average variable cost. Therefore, the short-run supply curve for a perfectly competitive firm is its marginal cost curve above the average variable cost curve. If the price is below the average variable cost, the firm will shut down and produce zero output. The choice A is incorrect because the firm only needs to produce where price equals or exceeds marginal cost, not its entire marginal cost curve. Choice C is incorrect because the industry supply curve is the horizontal summation of individual firm supply curves. Choice D is incorrect because the firm does not consider its average revenue curve when determining how much to produce. Choice E is incorrect because the rising portion of the average variable cost curve is the point where the firm decides to shut down temporarily in the short run.

The Short- Run Supply Curve for a Perfectly Competitive Firm