The supply curve of a competitive firm in the short-run is:
A)the marginal cost curve.
B)the marginal cost curve above the minimum of average variable cost.
C)the marginal cost curve above the minimum of average cost.
D)the negatively sloped portion of the marginal cost curve.

Question

Quizplus · Accepted Answer

In the short-run, a competitive firm will produce where marginal cost equals marginal revenue. However, the supply curve will only apply to the portion of the marginal cost curve that is above the minimum of average variable cost. This is because if the price is below the minimum of average variable cost, the firm will shut down and produce nothing. Thus, the supply curve will be the marginal cost curve above the minimum of average variable cost.

The Supply Curve of a Competitive Firm in the Short-Run