Chapter 11R, Problem 11MCQ

To determine

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

Answer to Problem 11MCQ

Option b is correct answer.

Explanation of Solution

Explanation for correct option:

b.

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 industry, the supply curve can be referred as the horizontal summation of the supply curve of all firms. Therefore, option b is correct.

Explanation for incorrect options:

a.

Supply curves for all firms represent the relationship between the price and output level that supplier is willing to sell in the market. It does not show the output level at which profit can be maximized. Therefore, option a is incorrect. c.

Supply curve is the curve that depicts the producer’s ability along with its desire to supply the level of output. It does not represent the level where profit can be maximized. Therefore, option c is incorrect.

d.

Supply curve in the perfectly competitive firm corresponds to marginal cost curve above the AVC. For perfectly competitive industry, it is horizontal summation of all firm’s supply curve instead of MC curve. Therefore, option d is incorrect.

e.

Vertical summation of supply curve refers to the curve where price is irrespective of the quantity sold in the market which is untrue. Suppliers always produce as per the price offered by the consumers. 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.