The Firm's Short-Run Supply Curve

A competitive firm takes the market price as given and picks quantity where price equals marginal cost, since that is the output level that maximizes profit. So for any price, the firm's marginal cost curve tells you exactly how much it will produce. That is what a supply curve is: a map from price to quantity supplied. The firm literally reads its answer off its own MC curve.

But not the whole MC curve counts. Below minimum average variable cost, the firm cannot even cover the variable costs of running, let alone fixed costs, so it shuts down and produces zero rather than following MC downward. Once price is at or above minimum AVC, the firm produces where P equals MC, and tracing that rule out as price rises traces out the upward-sloping supply curve. So the supply curve is the MC curve, but only the segment at or above the minimum of AVC.

This sets up market supply directly: since every identical competitive firm follows the same P-equals-MC rule, the market supply curve at any price is just the horizontal sum of what each firm supplies there. With 100 identical firms, you take the quantity one firm supplies at a given price and multiply by 100. This is also the bridge into long-run analysis, where entry and exit driven by economic profit or loss shift that short-run supply curve until profit is driven to zero.