In a market with a fixed number of firms, as long as price is above average
A)variable cost, each firm's marginal-cost curve is its supply curve.
B)variable cost, each firm's average-total-cost curve is its supply curve.
C)total cost, each firm's marginal-cost curve is its supply curve.
D)total cost, each firm's average-total-cost curve is its supply curve.

Question

Quizplus · Accepted Answer

In a market with a fixed number of firms, each firm operates in the short run where the firm's fixed costs are sunk and only variable costs matter. Each firm will produce where its marginal cost equals the market price, as long as the price is above average variable cost. This is because if the price is below average variable cost, the firm would be better off shutting down in the short run and minimizing its losses. Therefore, each firm's marginal-cost curve, which represents the firm's variable costs, is its supply curve in the short run.

In a Market with a Fixed Number of Firms, as Long