The supply curve for the firm in perfect competition:Question 58Select one:a.is the MC curve above the minimum of ATC.b.tells the quantity produced at each price.c.must result in a price greater than MR.d.shows the outputs at which the firm makes an economic profit.
Question
The supply curve for the firm in perfect competition:Question 58Select one:a.is the MC curve above the minimum of ATC.b.tells the quantity produced at each price.c.must result in a price greater than MR.d.shows the outputs at which the firm makes an economic profit.
Solution
The correct answer is:
a. is the MC (Marginal Cost) curve above the minimum of ATC (Average Total Cost).
Explanation:
In perfect competition, the firm's supply curve is indeed the portion of its marginal cost curve that lies above the minimum of the average total cost curve. This is because, in the long run, firms will only produce if the price is greater than the minimum point of the ATC curve. If the price is below this point, firms would be making a loss and would choose to shut down instead. Therefore, the supply curve for a firm in perfect competition is the MC curve above the minimum of ATC.
The other options are incorrect because:
b. The supply curve does not tell the quantity produced at each price. It shows the quantity that the firm is willing and able to supply at each price, not the quantity actually produced.
c. In perfect competition, price equals marginal revenue (MR). Therefore, the price cannot be greater than MR.
d. The supply curve does not show the outputs at which the firm makes an economic profit. It shows the quantity that the firm is willing and able to supply at each price. Economic profit depends on both revenue and cost, not just the quantity supplied.
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