The supply curve for the short-run competitive firm is the same as:
A. Marginal cost curve
B. Average variable cost curve
C. That part of the marginal cost curve which equals or is greater than AVC
D. Average total cost curve
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Correct Answer : C.
Supply Curve for Short-Run Competitive Firm? A perfectly competitive firm's supply curve is that portion of its marginal cost 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 marginal cost curve in response to changing prices. A perfectly competitive firm maximizes profit by producing the quantity of output that equates marginal revenue and marginal cost. In that price equals marginal revenue for a perfectly competitive firm, price is also equal to marginal cost. In other words, the firm produces by moving up and down along its marginal cost curve. The marginal cost curve is thus the perfectly competitive firm's supply curve. Because the marginal cost curve is positively sloped due to the law of diminishing marginal returns, so too is the firm's supply curve. And because all firm's in a perfectly competitive industry have positivelysloped marginal cost curves, the market supply curve for the entire industry is also positively sloped. This offers a prime explanation for the law of supply.}