A competitive firm's short-run supply curve is its cost...

A competitive firm's short-run supply curve is its
________ cost curve above its ________ cost curve.
a. average total, marginal
b. average variable, marginal
c. marginal, average total
d. marginal, average variable

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Key Concepts

Average Variable Cost Curve

The average variable cost curve shows the variable cost per unit of output. It is a critical benchmark in the short run because a firm must cover its average variable costs to justify production; if the market price falls below this level, the firm will minimize its losses by shutting down production.

Short-Run Supply Curve

The short-run supply curve for a competitive firm is derived from the marginal cost curve above the point where price equals the average variable cost. This portion of the marginal cost curve indicates the quantity of output the firm is willing to supply at different prices, ensuring that production continues only while it covers the variable costs.

Competitive Firm

A competitive firm is one that operates in a market where there are many buyers and sellers, and no single firm has the power to influence the market price. Such firms are price takers and must base their production decisions solely on market price and their cost structures.

Marginal Cost Curve

The marginal cost curve represents the additional cost incurred when producing one more unit of output. In a competitive market, a firm will produce additional units as long as the market price is greater than or equal to the marginal cost, thereby maximizing profit.

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