The short-run supply curve in a price-taking industry is the
A) horizontal summation of the individual firms' MC curves above ATC.
B) horizontal summation of the individual firms' MC curves above AVC.
C) horizontal summation of the individual firms' AVC curves above MC.
D) vertical summation of ATC curves above AVC.

Question

Quizplus · Accepted Answer

In a price-taking industry, each firm takes the market price as given and produces at the quantity where its marginal cost equals the market price. Therefore, the short-run supply curve is the horizontal summation of the individual firms' marginal cost (MC) curves above their average variable cost (AVC) curves, since firms will only produce if the price is above their AVC. Thus, choice B is the correct answer.

The Short-Run Supply Curve in a Price-Taking Industry Is the