Question on: JAMB Economics - 2002
Under conditions of perfect competition, a firm's supply curve is determined by its?
A
total cost curve
B
marginal cost curve
C
variable cost curve
D
fixed cost curve
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Correct Option: B
Under perfect competition, a firm's supply curve is determined by its marginal cost curve. This is because:
- Profit Maximization: Firms in perfect competition aim to maximize profits. They do this by producing at the quantity where marginal cost (MC) equals marginal revenue (MR). In perfect competition, the price (P) equals MR. Therefore, the profit-maximizing condition becomes P = MC.
- Supply Curve Derivation: The MC curve shows the additional cost of producing one more unit. The firm will supply a quantity where the price equals the marginal cost. Thus, the portion of the marginal cost curve above the average variable cost (AVC) represents the firm's supply curve.
- Other Options:
- Total cost, variable cost, and fixed cost curves are related to
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