Question

what is the relationship between marginal cost and short-run supply curve explain using graphs.

Answer 1

In the short runm there are some factors fixed which indicates that only variable factors are changed. A change in quantity of production will bring changes in the variable cost. These changes are measured by the marginal cost. In this sense, the marginal cost resembles the supply curve in the short run.

However, we realize that supply function is upward sloping. Also, MC is U-shaped so MC falls, reaches minimum and then rises. This indicates that the rising portion of the MC gives a typical firm's supply curve in short run. For a perfectly competitive firm, there is a minimum AVC as a threshold for the supply to start below which nothing is produced.