The following figure shows the cost curves of a firm producing good X.

-Refer to Figurer. Identify the supply curve of the firm.
A)It is given by the MC curve.
B)It is given by the vertical axis for price below minimum AVC and the upward-sloping portion of the MC curve for prices above minimum AVC.
C)It is given by the vertical axis for price below minimum AC and the upward-sloping portion of the MC curve for prices above minimum AC.
D)It is given by the portion of the MC above point E.

Question

The following figure shows the cost curves of a firm producing good X.
 
-Refer to Figurer. Identify the supply curve of the firm.
A)It is given by the MC curve. 
B)It is given by the vertical axis for price below minimum AVC and the upward-sloping portion of the MC curve for prices above minimum AVC. 
C)It is given by the vertical axis for price below minimum AC and the upward-sloping portion of the MC curve for prices above minimum AC. 
D)It is given by the portion of the MC above point E.

Quizplus · Accepted Answer

The supply curve represents the minimum price at which a firm is willing to sell its output in the short run. When the price is below the minimum average variable cost (AVC) of the firm, it will shut down and not produce any output. Thus, the supply curve for prices below minimum AVC is the vertical axis. For prices above the minimum AVC, the firm will produce the quantity where marginal cost (MC) equals the price, and this upward-sloping portion of the MC curve represents the supply curve for prices above minimum AVC. Hence, the correct answer is (B).

The Following Figure Shows the Cost Curves of a Firm