Discrepancies in the graphical representation of a perfectly competitive industry's short-run supply curve in principles of microeconomics textbooks.

Abstract

Discrepancies in the graphical representation of a perfectly competitive industry’s short-run supply curve in principles of microeconomics textbooks.

Luis Lepervanache, Undergraduate; Alyssa Howard, Undergraduate

University of North Georgia, Mike Cottrell College of Business

There is a branch of microeconomics that studies markets in perfect competition. Most microeconomic textbooks describe the short-run supply (SRS) curve as the portion of the marginal cost (MC) curve above the average variable cost (AVC) curve. However, this assumption is inherently incorrect because the SRS curve is not limited to that specific portion of MC. This study aims to prove the industry SRS curve in a perfectly competitive market is both the portion of MC above AVC as well as a horizontal line from the Y-axis to the minimum of AVC. In order to prove this, an explicative investigation was designed including a survey of eleven principles of microeconomics textbooks and a graphical explanation proving the hypothesis. None of the textbooks surveyed explained the supply curve including the horizontal section and the graphical explanation constructed proved its existence. This investigation effectively determined that the standard textbooks surveyed all contained incorrect assumptions regarding the firm SRS curve in perfectly competitive markets.

Keywords: Average variable cost (AVC), perfect competition, short-run supply (SRS), marginal cost (MC)