Which of the following statement is true? The entire marginal cost curve becomes the firms short-run...

Which of the following statement is true?

The entire marginal cost curve becomes the firms short-run supply curve.

Market demand is infinitely elastic in all competitive industries.

The average variable cost curve represents the short run supply curve for competitive firms.

--	Normal profits are a cost of production. (I chose this one. Is this right?)

Competitive firms can earn no economic profits during the short run period of time.

Expert Solution

Let's see each option separately.

a) The option is "false". The marginal cost curve above the point where the marginal cost curve intersects the variable cost curve becomes the supply curve. That is also the shutdown point. Below this, there is no supply.

b) "false". for monopoly, monopolistic competition, and other non-competitive markets the demand is not infinitely elastic.

c) "False" short-run supply curve represents the cost the firm incurred in the production of good. At the point where it meets the AR and MR curve with the MC curve that is the equilibrium point. Anything price above it is profit and below it is a loss.

e) This statement is actually for the long run, not the short run.

d) True Normal profit includes all that the firm earns in the short run. Profit includes a return for all agents of production land, labor, capital, and enterprise. This profit is a part of the cost incurred in the production. It is also the break-even where all the salaries, interest, rent and compensation is included. Hence, your answer is right.

Rahul Sunny answered 1 year ago

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