The correct answer is: A. Is equal to that portion of the long-run marginal cost curve that is above the relevant short-run average variable cost curve.
A perfectly competitive firm is a price taker, meaning that it cannot affect the market price of its product. In the long run, a perfectly competitive firm will produce at the point where its marginal cost equals the market price. This is because, in the long run, a firm can adjust all of its inputs, including its plant size. If the market price is above the firm’s minimum average variable cost, the firm will produce in the short run, even though it is making a loss. However, in the long run, the firm will exit the industry if the market price is below its minimum average total cost.
The long-run supply curve of a perfectly competitive firm is the portion of the long-run marginal cost curve that is above the minimum average variable cost curve. This is because, in the long run, a firm will only produce if the market price is above its minimum average variable cost. If the market price is below the minimum average variable cost, the firm will shut down in the short run and exit the industry in the long run.
Option B is incorrect because the long-run supply curve is not equal to that portion of the long-run marginal cost curve that is above the relevant short-run average total cost curve. In the long run, a firm will only produce if the market price is above its minimum average variable cost. If the market price is below the minimum average variable cost, the firm will shut down in the short run and exit the industry in the long run.
Option C is incorrect because the long-run supply curve is not equal to that portion of the long-run average total cost curve that is above the relevant short-run average variable cost curve. In the long run, a firm will only produce if the market price is above its minimum average variable cost. If the market price is below the minimum average variable cost, the firm will shut down in the short run and exit the industry in the long run.
Option D is incorrect because the long-run supply curve is not equal to none of the above. The long-run supply curve of a perfectly competitive firm is the portion of the long-run marginal cost curve that is above the minimum average variable cost curve.