The figure below shows the cost curves of a firm in a competitive market. The firm always makes the choice to maximize its profit.

-Refer to the figure above.The short-run supply curve of the firm is ________.

Question

The figure below shows the cost curves of a firm in a competitive market. The firm always makes the choice to maximize its profit.
 
-Refer to the figure above.The short-run supply curve of the firm is ________.

Quizplus · Accepted Answer

In a competitive market, the firm's short-run supply curve is the upward-sloping portion of the marginal cost curve above the minimum of the average variable cost curve. In this figure, that portion of the marginal cost curve begins at a price of $1.50, so the correct answer is B. Option A is incorrect because the firm will shut down in the short run if the price falls below the minimum of the average variable cost, which is $1.50 in this case, and thus there is no supply curve. Option C is incorrect because the marginal cost curve only applies to the portion of the supply curve above the minimum of the average variable cost curve. Option D is incorrect because the firm will not produce any output below the minimum of the average variable cost curve.

The Figure Below Shows the Cost Curves of a Firm