The short-run supply curve of the perfectly competitive industry is found by summing the

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In a perfectly competitive market, firms will only produce if the price they receive is greater than or equal to their marginal cost (MC) of production. However, they will only produce if the price they receive is also greater than or equal to their average variable cost (AVC). This is because if the price is only covering their variable costs, they are better off shutting down in the short-run. Therefore, the short-run supply curve is found by summing the MC curves above the AVC curves of the individual firms in the industry. This is because any price lower than the firms' AVC will result in them shutting down and producing nothing, while any price greater than their MC but lower than their AVC will result in them producing a quantity that minimizes their losses, but no more. Only prices greater than or equal to their MC and AVC will result in them producing at their profit-maximizing output.

The Short-Run Supply Curve of the Perfectly Competitive Industry Is