Question

Which of the following best describes the relationship between supply curve and the marginal cost curve for the purely competitive firm in the short run?

a. The supply curve is the same as the marginal cost curve throughout its upward sloping part.

b. The marginal cost curve and supply curve are the same above the average total cost curve.

c. The supply curve is the same as the marginal cost curve above the average variable cost curve.

d. The marginal cost curve has nothing to do with supply curve.

Answer 1

The supply curve for a purely competitive firm in the short run is the same as its marginal cost curve above the average variable cost curve, representing the firm's willingness to supply based on where price equals marginal cost. b. The marginal cost curve and supply curve are the same above the average total cost curve.

Step-by-step explanation:

The relationship between the supply curve and the marginal cost curve for a purely competitive firm in the short run can be best described by the statement that the supply curve is the same as the marginal cost curve above the average variable cost curve.

Specifically, the marginal cost curve becomes the firm's supply curve starting from the minimum point on the average variable cost curve. When a firm is deciding how much to produce, it references the market price and then its marginal cost curve to determine the output level where price equals marginal cost, provided the price is greater than the minimum average variable cost. Therefore, if the marginal costs increase, the firm's individual supply curve will shift to reflect the higher costs associated with producing goods, leading to a decrease in the quantity supplied at every price level.