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What portion of a firms marginal cost curve is the firm's supply curve? What conditions are...

What portion of a firms marginal cost curve is the firm's supply curve?


What conditions are necessary for a market to be perfectly competitive?

If average cost is decreasing, what it the value of marginal cost relative to average cost?


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Answer #1

1) Marginal cost curve that lies above the minimum of average variable cost curve is the firm's supply curve.

2) Perfect competition is a market structure in which large number of firms produce homogenous ( identical or uniform) product. Following are the main conditions necessary for a market to be perfectly competitive.

* Many buyers and sellers

Large number of buyers and sellers exist in a perfect competition market.

* Identical product.

Product sold by the firms are are the same.

* Perfect knowledge

Market provides perfect information about the price and the product .

* Freedom of entry and exit.

In a perfect competition market, firms can enter and exit freely. There are no barriers to entry and exit.

3) When average cost is decreasing, marginal cost is less than the average cost or marginal cost curve lies below the average cost curve.

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