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Why is the supply curve of a firm in perfect competition is the rising portion of the Mc curve which lies above the avc curve explain with diagram?
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Why is the supply curve of a firm in perfect competition is the rising...
Explanation of the Supply Curve in Perfect Competition
In perfect competition, the supply curve of a firm is the rising portion of the MC curve which lies above the AVC curve for the following reasons:
1. Marginal Cost and Average Variable Cost
- Marginal Cost (MC): Marginal cost is the additional cost of producing one more unit of output. It is the slope of the total cost curve.
- Average Variable Cost (AVC): Average variable cost is the variable cost per unit of output, calculated by dividing total variable cost by the quantity of output produced.
2. Relationship between MC, AVC, and Supply Curve
- Rising MC Curve: The MC curve typically rises as output increases due to diminishing marginal returns.
- AVC Curve: The AVC curve also tends to rise as output increases, but it may initially fall and then rise due to economies and diseconomies of scale.
- Supply Curve: In perfect competition, a firm will produce output as long as price is greater than or equal to AVC, as it can cover its variable costs. Therefore, the firm's supply curve is the rising portion of the MC curve above the AVC curve.
Conclusion
In conclusion, the supply curve of a firm in perfect competition is determined by the relationship between the rising MC curve and the AVC curve. The firm will supply output as long as price exceeds AVC to cover variable costs and contribute towards fixed costs and profits.
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Why is the supply curve of a firm in perfect competition is the rising portion of the Mc curve which lies above the avc curve explain with diagram?
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Why is the supply curve of a firm in perfect competition is the rising portion of the Mc curve which lies above the avc curve explain with diagram? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Why is the supply curve of a firm in perfect competition is the rising portion of the Mc curve which lies above the avc curve explain with diagram? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Why is the supply curve of a firm in perfect competition is the rising portion of the Mc curve which lies above the avc curve explain with diagram?.
Why is the supply curve of a firm in perfect competition is the rising portion of the Mc curve which lies above the avc curve explain with diagram? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Why is the supply curve of a firm in perfect competition is the rising portion of the Mc curve which lies above the avc curve explain with diagram? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Why is the supply curve of a firm in perfect competition is the rising portion of the Mc curve which lies above the avc curve explain with diagram?.
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