Question

A firm's supply curve for a good indicates?

1) the minimum quantity supplied at each price, holding all other factors constant
2) the maximum quantity supplied at each price, holding all other factors constant
3) the firm's minimum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant
4) the firm's maximum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant

Answer 1

A firm's supply curve shows the minimum price it will accept for each quantity of output, determined by production costs and desired profit, and its relationship with the market price and Marginal Cost (MC).

Step-by-step explanation:

A firm's supply curve for a good indicates the minimum price a firm will accept to produce a given quantity of output, holding all other factors constant. This price is composed of the production costs, which include the cost of raw materials, equipment, rent, and wages, as well as the desired profit margin of the firm. The supply curve illustrates the relationship between the price of the good and the quantity supplied, where each point on the curve represents a different quantity and the corresponding minimum price the firm is willing to accept for that quantity.

Marginal Cost (MC) plays a critical role as well. For a perfectly competitive firm, the marginal cost curve is identical to the firm's supply curve starting from the minimum point on the average variable cost curve. The firm uses this to decide the quantity to produce by ensuring the market price is greater than or equal to the MC, which in turn must be higher than the minimum average variable cost.