Question

A perfectly competitive firm's supply curve is the:

1) rising part of MC curve beginning at the shutdown point.
2) MC curve below the shutdown point.
3) rising part of MC curve beginning at the point at which the firm starts earning economic profit.
4) entire MC curve.

Answer 1

The supply curve for a perfectly competitive firm is the rising part of the marginal cost curve beginning at the shutdown point, which is the minimum point on the average variable cost curve.

Step-by-step explanation:

For a perfectly competitive firm, a supply curve is represented by the marginal cost (MC) curve, but only the portion that lies above the minimum point of the average variable cost (AVC) curve. This is because a firm will only produce if the market price is higher than the minimum average variable cost, which ensures the firm can cover its variable costs; otherwise, the firm would shut down in the short run.

Therefore, the supply curve for a perfectly competitive firm is the rising part of the MC curve beginning at the shutdown point, not the entire MC curve, nor below the shutdown point, and this does not necessarily align with the point at which the firm starts to earn economic profits.