In the short run some factors are fixed while some are variable.The output can be increased only by utilizing more the fixed factors and using more variable factors.
In perfect competition MR and MC should be equal for a firm to be in equilibrium.Similarly marginal cost should be equal to price.Hence,in perfect competition,the firm produces and sells that quantity of goods at which MC =price.Since price is given for a perfectly competitive firm,the line or the AR curve is a horizontal straight line.
In the figure AT OP4 price, the firm produces and supplies OM4 quantity.Because MC=price at OM4 supply.Similarly,the firm produces and supplies OM3 at price OP3,OM2 at price OP2 and OM1 at price OP1.The firm will not produce at below OP1.Since,it will not cover even average variable cost(AVC).
It is now obvious that the short run marginal cost curve,SMC of a firm is also the short supply curve.But only the part of SMC curve which lies above AVC curve is the short run supply curve.The thick portion of SMC is the short run supply curve of the firm.Since under perfect competition.MC curve must be rising at equilibrium output,the short run curve of a firm always upwards to the right.
In perfect competition MR and MC should be equal for a firm to be in equilibrium.Similarly marginal cost should be equal to price.Hence,in perfect competition,the firm produces and sells that quantity of goods at which MC =price.Since price is given for a perfectly competitive firm,the line or the AR curve is a horizontal straight line.
In the figure AT OP4 price, the firm produces and supplies OM4 quantity.Because MC=price at OM4 supply.Similarly,the firm produces and supplies OM3 at price OP3,OM2 at price OP2 and OM1 at price OP1.The firm will not produce at below OP1.Since,it will not cover even average variable cost(AVC).
It is now obvious that the short run marginal cost curve,SMC of a firm is also the short supply curve.But only the part of SMC curve which lies above AVC curve is the short run supply curve.The thick portion of SMC is the short run supply curve of the firm.Since under perfect competition.MC curve must be rising at equilibrium output,the short run curve of a firm always upwards to the right.
