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Use your own language to explain that short run supply curve by a price-taking firm is...

Use your own language to explain that short run supply curve by a price-taking firm is the positively-sloped portion of the short-run marginal cost curve.

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Answer #1

Consider the diagram above

The firm in the perfect competitive market sets P=MC for profit maximization

It will only produce if the price is equal to or greater than minimum AVC because in the short run, only variable cost matters and as long as the firm is able to recover its variable costs, it will keep producing in the short run.

The point S on the graph above shows the minimum AVC point which is also known as the shutdown point because below this point,the firm will not produce and choose to shut down.

In this case, the line S-S2 becomes the supply curve of the perfect competitive firm in the short run as the firm will set P=MC and produce at any price between these two points.

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