What is the correct answer?


The short-run supply curve of the perfectly competitive firm is given by:

A. The rising portion of its MR over and above the break-even (shut-down) point

B. The rising portion of its MC over and above the break-even (shut-down) point

C. The rising portion of its MC over and above the AC curve

D. The rising portion of its MC curve

Correct Answer :

B. The rising portion of its MC over and above the break-even (shut-down) point

The short-run supply curve for a perfectly competitive firm is the marginal cost (MC) curve at and above the shut-down point. Portions of the marginal cost (MC) curve below the shut-down point are not part of the short-run supply curve b/c the firm is not producing in that range .The short-run supply curve of perfectly competitive firm is also defined as The portion of MC curve that lies above the minimum of the average variable cost curve. A perfectly competitive firm maximizes profit by producing the quantity of output that equates price and marginal cost. As such, the firm moves along its positively-sloped MC curve in response to changing prices.}

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