GENERAL KNOWLEDGE

THE SUPPLY CURVE OF A PERFECTLY COMPETITIVE FIRM IS IDENTICAL TO ITS

  • A. total cost
  • B. marginal cost ✓
  • C. fixed cost
  • D. variable inputs

 

The answer to the question is: B. marginal cost

In a perfectly competitive market, firms are price takers, meaning they have no control over the market price and must accept the prevailing market price for their goods or services. In this type of market structure, individual firms are small relative to the overall market and produce homogeneous products. The supply curve of a perfectly competitive firm is determined by its marginal cost. Marginal cost is the additional cost incurred by producing one more unit of output. In the short run, a perfectly competitive firm will continue to produce as long as the market price exceeds its marginal cost. Therefore, the supply curve of a perfectly competitive firm is identical to its marginal cost curve.

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