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Relationship between marginal cost and the supply curve for a purely competitive firm?


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April 09, 2013 8:29PM

Marginal cost curve above the average variable cost curve, is the same as the short run supply curve. In perfect competition, MC=Price. It follows that production will be at that point. Hence the supply curve is the same as that part of the MC curve which is above AVC, where the firm can cover its variable cost....this is better than shutting down.