Question

Why is the marginal cost curve of a firm the supply curve as long as it’s above the average variable cost?

Answer 1

The marginal cost curve is the supply curve of a firm from the portion of the marginal cost curve which lies above the minimum point at which marginal cost curve cuts average variable cost. Because below the minimum point of average variable cost firm would shut down as it cannot even bear its variable costs. The upward sloping marginal cost curve above the average variable costs shows positive profits or firm can at least cover its variable cost if not total cost. In case of shut down, the supply curve is zero and firm bear losses equal to fixed cost.