Question

Which of the following statements is correct? a. The positively sloped portion of a price-taking firm’s short-run marginal cost curve, above its point of minimum short-run average variable cost, is this firm’s short-run supply curve. b. In the short-run, for prices below SAVC, the price-taking firm will choose to produce no output. c. In the short-run, a price taking firm will produce level of output for which SMC = p, where p is the market price at which it sells its output. d. All of the above

Answer 1

Ans) d is the correct option.All of the above. The Firm’s short period supply curve is that portion of its marginal cost curve that lies-above the minimum point of the average variable cost curve. In the short-run, for prices below SAVC, the price-taking firm will choose to produce no output.because as soon as the market price falls below the minimum of SAVC, which implies that the firm is not able to cover its fixed as well as variable costs, and thus it will stop production. At profit maximising point, price must be equal to MC and it cannot be greater or lesser than MC.