SHORT-RUN SUPPLY CURVE: For a perfectly competitive firm, the marginal cost curve that lies above the average variable cost curve. This segment of the marginal cost guides a perfectly competitive firm's profit maximizing production as it equates price to marginal cost. Because the marginal cost curve is positively sloped (due to the law of diminishing marginal returns), each firm's supply curve and the market supply curve are also positively sloped. The law of diminishing marginal returns thus provides an explanation for the law of supply. However, this only works for firms with NO market control. Monopoly, monopolistic competition, and oligopoly, with market control, do not achieve the same result. See also | short run | supply curve | perfect competition | marginal cost curve | average variable cost curve | profit maximization | price | marginal cost | law of diminishing marginal returns | law of supply | market control | short-run supply curve, monopoly | short-run supply curve, monopolistic competition |
