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Question

In a perfectly competitive market, a firm’s long run supply curve is

A The upward segment of its average cost curve Correct Answer Incorrect Answer
B The upward segment of its marginal cost curve which is above the lowest point of the average cost curve Correct Answer Incorrect Answer
C The upward segment of its marginal cost curve Correct Answer Incorrect Answer
D The upward segment of its marginal cost curve which is above the lowest point of the average variable cost curve Correct Answer Incorrect Answer
E None Correct Answer Incorrect Answer

Solution

In a perfectly competitive market, a firm’s long run supply curve is the upward segment of its marginal cost curve which is above the lowest point of the average cost curve because at any point below the minimum of AC, the firm will shut down because price is below AC and it is incurring losses. In the long run, all costs are variable.

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