A firm's short-run supply curve is its marginal cost curve above its average variable cost curve.

Question

Quizplus · Accepted Answer

In the short run, a firm's supply curve is determined by its marginal cost curve as long as the price is greater than or equal to the average variable cost of production. Therefore, the firm will produce at the quantity where marginal cost equals price. However, if the price is less than the average variable cost, then the firm will shut down and produce nothing. Therefore, the short-run supply curve is the portion of the marginal cost curve that lies above the average variable cost curve.

A Firm's Short-Run Supply Curve Is Its Marginal Cost Curve