Q6 of 31 Page 1

‘Supply curve is the rising portion of marginal cost curve over and above the minimum of Average Variable cost curve’. Do you agree? Support your answer with valid reason.


Yes. The supply curve is the rising portion of the marginal cost curve over and above the minimum of Average Variable cost curve. This happens especially in perfect competition. The equilibrium of the firm in the market is fulfilled by two main conditions:


• MR=MC


• The slope of MC is greater than the slope of MR


The rising portion of the MC curve becomes the supply curve. It will become the supply curve after it has crossed the minimum point of the AVC curve as no producer will increase the production if the variable cost is not covered. The line joining all the points of production lying above the AVC curve is the supply curve.



More from this chapter

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4

Which of the following is an assumption of Production Possibility Frontier?

i) Resources are not fully employed.


ii) Resources are not equally efficient for the production of the two goods.


iii) Resources are not efficiently employed.


iv) Resources available are not fixed.

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State any two central problems under ‘problem of allocation of resources’.

 7

Explain ‘black marketing' as a direct consequence of the price ceiling.

OR


Explain the concept of ‘buffer stock' as a tool of a price floor.

 8

Explain any two sources of restricted entry under monopoly.