The short run supply schedule of a firm under perfect competition is given below:
| Price (Rs) | 5 | 10 | 15 | 20 | 25 |
|---|---|---|---|---|---|
| Quantity supplied (units) | 0 | 0 | 30 | 40 | 50 |
What can be concluded about the firm’s minimum average variable cost (AVC)?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → It lies between Rs 10 and Rs 15.
A firm supplies zero output at every price below its minimum AVC and a positive output from the minimum AVC upward.
At Rs 5 and Rs 10 the firm supplies nothing, so the minimum AVC is above Rs 10.
At Rs 15 it supplies 30 units, so Rs 15 is not below the minimum AVC.
So the minimum AVC lies between Rs 10 and Rs 15.
NCERT (2026-27): “4.4.1 Short Run Supply Curve of a Firm … Suppose the market price is p2, which is less than the minimum AVC. … But notice from Figure 4.7 that for all positive output levels, AVC strictly exceeds p2. In other words, it cannot be the case that the firm supplies a positive output. So, if the market price is p2, the firm produces zero output. … Combining cases 1 and 2, we reach an important conclusion. 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.” |