The short-run supply curve for a firm in a perfectly competitive market is

Question

BlackTom AI · Accepted Answer

Question restatement: The short-run supply curve for a firm in a perfectly competitive market is
Options:
 a. horizontal.
 b. likely to slope downward.
 c. determined by forces external to the firm.
 d. the portion of its marginal cost curve that lies above its average variable cost.

Analysis of each option:
Option a: horizontal. In the short run, a perfect competitor faces a horizontal demand curve for its output, but the firm’s own supply curve is not horizontal. The firm’s supply is driven by its marginal cost above the variable cost threshold; a horizontal supply would imply price-taking behavior does not affect quantity, which misrepresents the upward-sloping response of MC with output. This makes option a incorrect.

Option b: likely to slope downward. A downward-sloping supply curve would imply that producers supply more as price falls, which contradicts basic microeconomic behavior where quantity supplied increases with price. In perfect competition, the firm adjusts quantity in response to price through the MC curve above AVC, not by a downward slope. Therefore, option b is incorrect.

Option c: determined by forces external to the firm. While market price is influenced by external forces, the short-run supply decision of a firm is driven by its own cost structure (marginal cost relative to AVC) and the market price; external forces do not directly determine the firm’s short-run supply curve. This description is too vague and ignores the firm-specific cost condition, so option c is incorrect.

Option d: the portion of its marginal cost curve that lies above its average variable cost. This aligns with standard microeconomic theory: in the short run, a competitive firm supplies output where price equals marginal cost, but only for quantities where MC is above AVC (since producing below AVC would incur losses greater than fixed costs). Therefore, the firm’s short-run supply curve corresponds to the segment of the MC curve above the AVC, making this option correct.

Summary of why the other options fail: options a and b mischaracterize the slope behavior of the supply curve relative to price; option c relies on external determinism without tying to the firm’s own cost structure. The definitive, textbook relationship is option d, describing the supply curve as the MC above AVC.

The short-run supply curve for a firm in a perfectly competitive market is

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