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The short-run supply curve for a competitive firm is the: a
The short-run supply curve for a competitive firm is the:
a. entire MC curve.
b. segment of the MC curve lying below the AVC curve.
c. segment of the MC curve lying above the AVC curve.
d. segment of the AVC curve lying to the right of the MC curve.
Expert Solution
The correct option is (c).
The short-run supply curve for a competitive firm is the segment of the MC curve lying above the AVC curve.
The firm's marginal cost curve above the minimum of AVC is its short-run supply curve. The minimum of AVC is the shutdown point below which no firm can produce. The minimum of AVC is the lowest point at which a firm can supply the goods. As the marginal cost rises, the firm will supply more as the price increase. A higher price will incentivize the firm to supply more, and the higher price represents the increasing marginal cost. Hence, a firm supplies along the marginal cost curve.
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