Figure 9-6 The Derivation of a Competitive Industry’s Supply Curve
The supply curve for a competitive firm is the portion of its MC curve
above the AVC curve. For prices below $20, output is zero because there
is no output at which variable costs can be covered. The point A, at which
the price of $20 is just equal to the minimum of AVC, is the firm’s shut-
down point. As price rises to $30, $40, and $50, the profit-maximizing
point changes to B, C, and D, taking output to and At any of
these prices, the firm’s revenue exceeds its variable costs of production
and thus can help to cover some part of its fixed costs.
The Supply Curve for an Industry
Figure 9-6 shows the derivation of an industry supply curve for an
industry containing only two firms. The general result for an industry
with many firms is as follows:
In perfect competition, the industry supply curve is the horizontal sum of the marginal cost
curves (above the level of average variable cost) of all firms in the industry.Q 1 ,Q 2 , Q 3.