The short-run supply curve is marginal cost above AVC

Each possible price selects a profit-maximizing quantity.

Trace different market prices across the rising MC curve. Below minimum AVC, quantity supplied is zero. At or above minimum AVC, the MC intersection gives quantity. Therefore the firm’s short-run supply is rising MC above AVC. Horizontal summation across firms gives short-run market supply.

Supply is a mapping from possible prices to profit-maximizing quantities. At $10 the firm may shut down. At $14 it may produce 30. At $20 it may produce 45. Connecting these chosen quantities traces the relevant MC segment. MC below minimum AVC is not supply because producing there would fail to cover variable cost.

At the exact minimum of AVC, the firm is indifferent between producing the shutdown-point quantity and zero: both lose fixed cost. Textbook graphs include the point in the supply segment. Below it, shutdown strictly dominates every positive output.

A fixed-cost change shifts ATC but not MC or AVC, so it does not change short-run output or supply. A per-unit tax raises MC and shifts firm and market supply. In the long run, even a fixed fee can influence exit and entry.

This yields a curve-specific policy result. An annual license fee lowers each firm’s profit but leaves the short-run supply quantity at a given price unchanged. A tax on every unit raises the cost of the marginal unit and moves the supply schedule left or upward. Both raise total cost, but only one changes short-run marginal choice.

Temporary shutdown produces zero current output but does not erase fixed cost. The firm remains capable of reopening if price recovers. A seasonal business may therefore shut during a low-demand period without exiting the industry. Exit means abandoning the market once all costs and inputs can be adjusted.

Construct two supply points

A firm’s minimum AVC is $8. Its rising MC equals $11 at 20 units and $16 at 32 units. At price $7, supply is zero. At $11, supply is 20. At $16, supply is 32. ATC may determine profit at those points, but it does not select the short-run supply quantity.

To obtain market supply, add firm quantities at each common price. If 100 identical firms each supply 20 at $11, market quantity supplied is 2,000. Entry changes the number of curves summed in the long run. An own-price change moves along the existing market curve in the short run.

The firm’s supply result depends on price taking. A monopolist also has an MC curve, but demand and MR jointly determine output and price, so MC alone does not map an independent market price to quantity. Do not transfer the competitive supply curve to market power.

If a graph asks for the supply segment, begin at minimum AVC, not minimum ATC. Minimum ATC is the break-even price. Confusing them would omit loss-minimizing outputs that the firm rationally supplies.

For nonidentical firms, market supply still adds quantities at each price, including zero for firms below their shutdown points. A price rise can expand active firms and bring high-cost firms into production. Thus market supply reflects both more output per active firm and changes in which firms operate.

The competitive result does not transfer to monopoly. A monopolist’s MC remains important, but demand and MR jointly determine its price and quantity. There is no independent price supplied by the market to trace along MC. Always check market structure before labeling a cost curve “supply.”