The long-run supply curve of a firm is: a

Accounting Dec 07, 2020

The long-run supply curve of a firm is:

a. its average total cost curve.

b. its marginal cost curve.

c. the portion of its marginal cost curve that lies below its average total cost curve.

d. the portion of its marginal cost curve that lies above its average total cost curve.

Expert Solution

The answer is D. The long-run supply curve of a firm is the portion of its marginal cost curve that lies above its average total cost curve. This is because the firm will exit the industry whenever its marginal cost is above the minimum point of the average cost curve.

Average total cost:

The firm's total cost (TC) is the sum of its fixed and variable costs. The firm's average total cost (AVC) can then be calculated as:

ATC=TCQATC=TCQ

where Q is the units of output produced.

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