The short-run supply curve for a purely competitive industry can be found by
A) multiplying the AVC curve of the representative firm by the number of firms in the industry.
B) adding horizontally the AVC curves of all firms.
C) summing horizontally the segments of the MC curves lying above the AVC curve for all firms.
D) adding horizontally the immediate market period supply curves of each firm.

Question

Quizplus · Accepted Answer

In the short-run, a perfectly competitive firm will only produce if its price is greater than its AVC. Thus, the portion of the MC curve above the AVC curve represents the firm's supply curve. To find the industry's short-run supply curve, we must sum horizontally the portions of the MC curves that lie above the AVC curves of all firms. This is represented in choice C. The other options do not accurately reflect how the short-run supply curve is derived in a perfectly competitive market.

The Short-Run Supply Curve for a Purely Competitive Industry Can