When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because
A)the position of the marginal cost curve determines the price for which the firm should sell its product.
B)among the various cost curves, the marginal cost curve is the only one that slopes upward.
C)the marginal cost curve determines the quantity of output the firm is willing to supply at any price.
D)the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

Question

Quizplus · Accepted Answer

When the price exceeds the average variable cost, the firm starts to make a profit and will produce at the point where marginal cost equals the price. Thus, the marginal cost curve determines the quantity of output the firm is willing to supply at any price. This is why it is regarded as the firm's supply curve in the short run.

When Price Exceeds Average Variable Cost in the Short Run