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Why is the short-run supply curve for a perfectly competitive firm not equivalent to the entire...

Why is the short-run supply curve for a perfectly competitive firm not equivalent to the entire marginal cost curve?

a. Because prices below the minimum variable cost curve cause the firm to shut down.

b. Because prices above the minimum variable cost curve cause the firm to shut down.

c. Because prices equal to the marginal cost curve cause the firm to shut down.

d. Because prices below the marginal cost curve cause the firm to shut down.

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Answer #1

Ans. a) Because prices below the minimum variable cost curve cause the firm to shut down.

The short-run supply curve of a perfectly competitive firm is the part of the marginal cost curve that is equal or above the minimum point of the average variable costs curve because of the minimum point of the average variable cost curve represents the shutdown point and if price falls below this level, the firm will not able to cover variable costs of the production along with fixed costs. Therefore, it will not continue to produce.

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