Read the following statements - Assertion (A) and Reason (R):
Assertion: Any factor that affects a firm's marginal cost curve is of course a determinant of its supply curve.
Reasoning: A firm's supply curve is a part of its marginal cost curve.
From the given alternatives choose the correct one:
Answer & explanation
Correct answer: option 4
The correct answer is Option 4: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
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Assertion (A): Any factor that affects a firm's marginal cost curve is of course a determinant of its supply curve. This is true. A firm's supply curve is directly related to its marginal cost curve. Changes in factors that affect marginal cost (e.g., input prices, technology) will also affect the firm's supply decisions.
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Reasoning (R): A firm's supply curve is a part of its marginal cost curve. This is also true. Specifically, in a perfectly competitive market, the firm's supply curve is the portion of its marginal cost (MC) curve that lies above its average variable cost (AVC) curve.
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Relationship: The reasoning correctly explains the assertion. Since the supply curve is derived from the marginal cost curve, any factor affecting the MC curve will inherently affect the supply curve.