In a perfectly competitive market, the short-run supply curve of an individual firm is giv… — JAMB UTME

In a perfectly competitive market, the short-run supply curve of an individual firm is given by the segment of its marginal cost ( $MC$ ) curve that lies above its minimum average variable cost ( $AVC$ ) curve.

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Answer

True. The short-run supply curve of a competitive firm is the rising portion of its marginal cost curve lying at or above the minimum point of its average variable cost curve.

The statement is correct because a price-taking firm's supply decisions in the short run are dictated by comparing price to marginal cost (

P = MC

) above the shut-down price level (

P = AVC_{\text{min}}

). Thus, the short-run supply curve is identical to the section of the

MC

curve above the minimum

AVC

Step-by-Step Solution

Identify the firm's short-run output rule under perfect competition.

The firm maximizes profit or minimizes loss where

P = MR = MC

Since the firm is a price taker, price equals marginal revenue (

P = MR

Determine the short-run operating threshold (shut-down condition).

The firm operates if

P \geq AVC_{\text{min}}

and shuts down (supplying

Q = 0

) if

P < AVC_{\text{min}}

Fixed costs are sunk in the short run, so the firm only needs to cover its variable costs to stay operational.

Correlate price levels to output quantity to identify the supply curve.

For any market price

P \geq AVC_{\text{min}}

, quantity supplied is determined directly by the

MC

curve.

This functional relationship defines the short-run supply curve as the segment of

MC

above minimum

AVC

Key Concept

Short-Run Supply Curve of a Competitive Firm

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