It is usually assumed that a perfectly competitive firm\'s supply curve is given

Question

It is usually assumed that a perfectly competitive firm's supply curve is given by its marginal cost curve. In order for this to be true, which of the following additional assumptions are necessary: That the firm seek to maximize profits ?. That the margnal cost curve be positively sloped III. That price exceed average variable cost. IV.That price exceed average total cost. a. all of the above. b. I and II but not III and IV. c. I and III but not II and IV. d. I and II only. e. I, II and III, but not IV

Explanation / Answer

Correct Answer:

E

The supply curve is upward sloping and MC curve to be supply curve, it should also be upward sloping. The MC curve should be above the AVC=price, so that firms will supply, otherwise shutdown will take place. There should be profit maximization and supply should increase with increase in price.

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