The short-run industry supply curve for a perfectly competitive industry is the
A) horizontal sum of the individual firms' marginal cost curves above AVC.
B) vertical sum of the individual firms' marginal cost curves above AVC.
C) horizontal sum of the individual firms' marginal cost curves above ATC.
D) vertical sum of the individual firms' marginal cost curves above ATC.

Question

Quizplus · Accepted Answer

The short-run industry supply curve in a perfectly competitive market is derived by horizontally summing the marginal cost curves of all firms in the industry, but only for the portions of those curves that lie above the average variable cost (AVC). This is because firms will only supply output in the short run if the price covers their AVC, otherwise, they will shut down production.

The Short-Run Industry Supply Curve for a Perfectly Competitive Industry