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The portion of marginal cost that lies above AVC is

The portion of marginal cost that lies above AVC is

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Answer #1

Under perfect competition, the portion of the marginal cost curve that lies above the average variable cost curve is the short-run supply curve of a firm.

We know that in a perfectly competitive industry, a firm maximizes its profit in the short run by producing the quantity at which price equals marginal cost.

Noting the above point and by looking at the figure given below, we can infer that if price falls below point A i.e. the minimum point of average variable cost(AVC) curve, a firm will be forced to shut down. So, he can only produce as long as price is above point A. This is given by the part of MC that is above AVC. We see that a firm's production is derived by its marginal cost curve only and hence, this portion of MC that lies above AVC(starting from point A) becomes its short-run supply curve.

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