A firm under perfect competition has a minimum AVC of Rs 20 and a minimum SAC of Rs 30 in the short run. Match the market price in List-I with the firm’s position in List-II:
| List-I | List-II | ||
|---|---|---|---|
| (A) | Rs 15 | (I) | Produces, though it earns less than normal profit |
| (B) | Rs 25 | (II) | Earns only normal profit |
| (C) | Rs 30 | (III) | Produces zero output |
| (D) | Rs 40 | (IV) | Earns super-normal profit |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A) - (III), (B) - (I), (C) - (II), (D) - (IV)
In the short run the firm compares the price with minimum AVC (Rs 20, the shut down point) and minimum SAC (Rs 30, the break-even point).
| List-I | List-II | Reason |
|---|---|---|
| (A) Rs 15 | (III) Produces zero output | Price is below minimum AVC, so the firm produces nothing. |
| (B) Rs 25 | (I) Produces, though it earns less than normal profit | Price covers AVC but not SAC. In the short run the firm may still produce. |
| (C) Rs 30 | (II) Earns only normal profit | Price equals minimum SAC: the break-even point. |
| (D) Rs 40 | (IV) Earns super-normal profit | Price is above minimum SAC, so profit is over and above normal profit. |
NCERT (2026-27): “4.4.1 Short Run Supply Curve of a Firm … A firm’s short run supply curve is the rising part of the SMC curve from and above the minimum AVC together with zero output for all prices strictly less than the minimum AVC. In figure 4.8, the bold line represents the short run supply curve of the firm.” “4.4.4 The Normal Profit and Break-even Point … Profit that a firm earns over and above the normal profit is called the super-normal profit. In the long run, a firm does not produce if it earns anything less than the normal profit. In the short run, however, it may produce even if the profit is less than this level. The point on the supply curve at which a firm earns only normal profit is called the break-even point of the firm. The point of minimum average cost at which the supply curve cuts the LRAC curve (in short run, SAC curve) is therefore the break-even point of a firm.” |