Is the short-run supply curve for a competitive firm represented by the segment of its marginal cost curve positioned above average variable cost ?
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Answer: E. portion of the marginal-cost curve that lies above the average variable cost curve
Explanation
A competitive firm's short-run supply curve corresponds to its marginal cost curve above average variable cost. Profit-maximizing firms produce output where market price equals marginal cost across the upward-sloping segment. If the price falls below average variable cost, the firm immediately shuts down production to minimize losses. Marginal cost measures the additional expense incurred by producing one extra unit of output. Price-taking firms in competitive markets have no market power and must accept whatever price prevails. Supply curves illustrate the positive relationship between market prices and the quantity supplied by producers.
The average total cost curve includes fixed costs which are irrelevant for short-run shutdown decisions. The average variable cost curve itself does not represent the quantity supplied at various market prices. Using the entire marginal cost curve ignores the crucial shutdown price threshold set by average variable cost.
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