JAMB UTME - Economics - 2005 | Green Bridge CBT

Under perfect competition, the short-run supply curve of a firm is determined by its

total cost curve

marginal cost curve

average fixed cost curve

average cost curve

Bayanin Amsa

Under perfect competition, the short-run supply curve of a firm is determined by its marginal cost curve. In a perfectly competitive market, there are numerous buyers and sellers, and all firms produce identical products. As a result, no individual firm has the ability to affect the market price. This means that the firm takes the market price as given and adjusts its output level accordingly. To maximize profit, the firm will produce at a level where its marginal cost equals the market price. Therefore, the short-run supply curve for a perfectly competitive firm is equal to its marginal cost curve above the minimum of its average variable cost curve. In the short run, a firm can only vary its variable inputs, such as labor and raw materials. Therefore, its short-run supply curve is upward-sloping due to the law of diminishing marginal returns. As output increases, marginal cost eventually increases, causing the firm to require a higher price to cover its costs and earn a profit. In summary, the short-run supply curve of a firm under perfect competition is determined by its marginal cost curve, as the firm will produce at a level where marginal cost equals market price to maximize profit.






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