Explain how can we derive a perfectly competitive firm’s supply curve. Explaining How to Derive a Perfectly Competitive Firm’s Supply Curve

Explaining How to Derive a Perfectly Competitive Firm’s Supply Curve

A perfectly competitive firm’s supply curve is an important tool for economic analysis, as it is used to determine the quantity of a good or service that a firm will produce and supply in response to changes in price. Deriving the supply curve involves an understanding of the market structure and the underlying economic principles driving the firm’s behavior. In a perfectly competitive market, firms are assumed to be price takers, meaning that they cannot influence the market price. This means that the firm’s supply curve is determined by the marginal cost of production or the cost of producing one additional unit of the good or service. The firm’s supply curve is the marginal cost curve, which is upward-sloping and reflects the increasing cost of production as the firm produces more of the good or service (Banker and Kruckman, 2016). The market price is determined by the intersection of the industry supply curve and the industry demand curve, which is assumed to be perfectly elastic. This means that the market price is constant, regardless of changes in the quantity supplied by the individual firms (Frye and Pinto, 2017). The firm’s supply curve is then determined by connecting the points at which the firm’s marginal cost curve intersects with the. Cont…