Question

How do you graph and interpret the short-run supply curve of a firm from the total cost function and market demand function?

Answer 1

From total cost function we will find the marginal cost curve by simple differentiating with respect to quantity.

and in short run, marginal cost curve is the supply curve of the firm when price is greater than min of AVC because firm produces or maximises profit when P=MC and in case do perfect competition, demand curve for the perfectly competitive firm is perfectly elastic thus P=MC is the supply curve but above min of AVC because below min of AVC, firm will shut down and incur an economic loss of TFC.

Thus MC is the supply curve above min of AVC in perfect competitive firm in short run