Answer to Question #109758 in Microeconomics for Tangi

Question

explain why the marginal cost curve above the average variables cost curve is referred to as the firm's short run supply curve? use both verbal and diagram analysis

Answer 1

The supply curve shows how many products at a certain price the company is ready to provide in the market. It provides an invisible connection between the market price and the costs of the enterprise. If the ratio between these parameters is not in favor of the company, then it will not produce this type of product. The minimum price at which the company is ready to present products to the market is the value of the minimum variable costs. If the price on the market is set above min AVC, then the supply volume will be determined by the point of intersection of the price line with the marginal cost curve.

Comparison of average and marginal cost of production - important information for the management of the company, which determines the optimal size of production.