Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry. FIGURE 9-2
-Refer to Figure 9-2.The short-run supply curve for this perfectly competitive firm is its
A)ATC curve at and above $3.
B)AVC curve at and above $1.50.
C)entire marginal cost curve.
D)marginal cost curve at and above $3.
E)marginal cost curve at and above $1.50.

Question

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.  FIGURE 9-2
-Refer to Figure 9-2.The short-run supply curve for this perfectly competitive firm is its
A)ATC curve at and above $3. 
B)AVC curve at and above $1.50. 
C)entire marginal cost curve. 
D)marginal cost curve at and above $3. 
E)marginal cost curve at and above $1.50.

Quizplus · Accepted Answer

In a perfectly competitive industry, the firm's short-run supply curve is determined by its marginal cost (MC) curve. Therefore, the correct answer is the marginal cost curve at and above $1.50 (the point where the AVC curve intersects the MC curve). This is because as long as the market price is higher than or equal to the firm's minimum average variable cost (AVC), the firm will continue to produce in the short run. When the price falls below the AVC, the firm will shut down and incur losses equal to its fixed costs. Hence, the firm's supply curve is the MC curve at and above $1.50.

Consider the Following Short-Run Cost Curves for a Profit-Maximizing Firm