The supply curve for this perfectly competitive firm is the segment of the: A) a

Question

The supply curve for this perfectly competitive firm is the segment of the:

            A) average total cost curve above point D.     C)   marginal cost curve above point C.

            B)   average variable cost curve above point C. D) marginal cost curve above point B.

    14.   A perfectly competitive firm would never continue producing in the short run if the market price was:

            A) lower than point C.                                    C)   between points C and D.

            B)   lower than point D.                                    D)   below point E.

Explanation / Answer

Q13. The part of short-run marginal cost curve of a perfectly competitive firm that lies above its average variable cost curve is its short-run supply curve.

In the given case, firm's MC curve above point C lies above the AVC. So, the segment of MC curve above point C is the supply curve of this perfectly competitive firm.

Hence, the correct answer is option (C).

Q14. In short-run, a perfectly competitive firm remains in operation until market price is greater than or equal to AVC. If market price falls below AVC then firm shuts down.

In perfect competition, price equals marginal cost. So, in a sense, it can be said that up to the point MC equals AVC, firm will produce. If MC become less than AVC then firm will shut down.

In given case, point C depict equality of MC and AVC. So, if market price becomes lower than point C then in that case, in short-run, perfectly competitive firm will not produce.

Hence, the correct answer is option (A).

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