Forum Archive Index - May 2001

[Lyall Taylor <lyall.taylor@xtra.co.nz>]

Here is why.

First note two things:

1/  You produce at MC=MR
2/  The supply curve represents the output the firm is prepared to
produce at different price levels.
3/  In perfect competition price=MR

The reason that the supply curve is the MC curve is that, if you imagine
the price changing, you get a changing horisontal MR curve.  As this
changes, if you always produce at MR(or P)=MC, the supply curve will be
the MC curve.

The reason that it is only above the AVC curve, is that, if MR does not
cover AVC, there is no point producing, and hence none are supplied.

Hope this helps.
Disc: Sat bursary ECO last year


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