A firm's marginal cost curve above the average variable cost...

Name: Problem 6, Chapter 8: Principles of Economics
Uploaded: 2021-06-27T17:11:50-08:00
Duration: 2 min 34 s
Channel: Karan Sood
Description: A firm's marginal cost curve above the average variable cost curve is equal to the firm's individual supply curve. This means that every time a firm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm's individual supply curve if marginal costs increase?

A firm's marginal cost curve above the average variable cost curve is equal to the firm's individual supply curve. This means that every time a firm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm's individual supply curve if marginal costs increase?

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Key Concepts

Marginal Cost

Marginal cost refers to the additional cost incurred from producing one more unit of output. It is a critical determinant of the firm's production decisions because it represents the cost that the firm must consider when deciding whether to increase production. When marginal costs increase, producing additional units becomes more expensive, influencing the firm's output level.

Firm's Individual Supply Curve

A firm's individual supply curve is derived from its marginal cost curve above the average variable cost curve. This relationship implies that the firm will produce up to the quantity where the price in the market equals its marginal cost. An increase in marginal costs means that, at any given output level, the cost is higher, so the firm requires a higher price to supply that output, effectively shifting its supply curve upward.

Supply Curve Shifts

Supply curve shifts occur when external factors, such as changes in production costs, alter the supply relationship between price and quantity. In this context, an increase in marginal costs leads to an upward or leftward shift in the supply curve, meaning the firm will supply a lower quantity at any given price unless the price adjusts upward to compensate for higher costs.

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