The lowest point on a purely competitive firm's short-run supply curve corresponds to
A) the minimum point on its ATC curve.
B) the minimum point on its AVC curve.
C) the minimum point on its AFC curve.
D) the minimum point on its MC curve.

Question

Quizplus · Accepted Answer

The lowest point on a purely competitive firm's short-run supply curve corresponds to the minimum point on its AVC curve. This is because in the short run, a firm will only produce if the price is equal to or greater than its AVC (average variable cost), which represents the variable cost of producing one unit of output. Thus, the point where AVC is at its minimum will determine the lowest price at which the firm would be willing to produce any output. Below that price, the firm would shut down in the short run. Therefore, the short-run supply curve of a purely competitive firm corresponds to the portion of its MC (marginal cost) curve that lies above its AVC curve. The minimum point on its AVC curve would therefore correspond to the lowest point on its short-run supply curve.

The Lowest Point on a Purely Competitive Firm's Short-Run Supply