When used in conjunction with the average-variable-cost curve, what does the supply curve tell a firm about its profits? This is in perfect competition

Economics Dec 08, 2020

When used in conjunction with the average-variable-cost curve, what does the supply curve tell a firm about its profits? This is in perfect competition.

Expert Solution

The average variable cost is the variable cost per unit of output and the supply curve tells us the positive relationship between price and quantity supplied. When the average variable cost is decreasing or remains constant, profit is increasing. It increases the production level because the firm has the advantage of the economies of scale, utilizing the full capacity of its fixed input.

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