Chapter 11R, Problem 10MCQ

To determine

The correct option for given situation where supply curve for perfectly competitive market is defined.

Answer to Problem 10MCQ

Option a is correct answer.

Explanation of Solution

Explanation for correct option:

a.

Supply curve explains the willingness of the marketer to sell its product at certain price. If the price increases the output level also increases. In short-run, for perfectly competitive firms, the supply curve can be referred as the part of marginal cost curve that lies above the ATC curve. It is shown below:

  

Therefore, option a is correct.

Explanation for incorrect options:

b.

In short-run, fixed cost is irrelevant to consider as it remains constant even if single or zero unit is produced. Level of output is decided as per the average variable cost at which producer can maximize its profit. Therefore, option b is incorrect.

c.

Supply curve is the curve that depicts the producer’s ability along with its desire to supply the level of output. Supply curve in the perfectly competitive firm corresponds to marginal cost curve above the AVC because the output level increases with the price. Therefore, option c is incorrect.

d.

As shown in the graph, AVC curve always lies below the ATC curve. Therefore, option d is incorrect.

e.

Usually, AVC curve is below the AFC. Supply curve refers to part of marginal cost curve that starts from the point at which MC rises after intersecting AVC curve at its minimum point. Therefore, option e is incorrect.

Economics Concept Introduction

Supply curve: Supply curve refers to the line that represents the relationship between the price of the product and the quantity that can be supplied by the producer.