Alright, so now that we've discussed when the firm is going to produce in the short run and the long run, let's see what the firm's supply curve is going to look like in the short run and the long run. So remember, first let's talk about the short run. This is going to be the short run first here, short run, all right. Here in the short run, when is it that a firm does not shut down? A firm does not shut down; it stays open when the price is greater than the average variable cost, right? That's when they stay open, that's when they keep producing, right? What we're going to see is that the firm's short-run supply curve, when we're dealing with perfect competition, is going to be the portion of the marginal cost curve above average variable cost, okay? That is where we produce in the short run, right? That's how we discuss it. At any price above that minimum AVC, any of those high prices, we are going to produce, maybe at a loss, maybe at a profit, but we are going to produce at any price above minimum AVC, right? So that's what we see here on this left-hand graph, right? On the left-hand graph, I have all of our curves showing, and you'll see, right? If we had a price right here, let's say this price right here, p1 that I'm going to put, we would produce right, we would produce this quantity where the marginal revenue equals the marginal cost. And anywhere, right, any other price I could have put a little bit higher, a little bit lower, as long as it's above that AVC, we're going to keep producing as they cross right? It's going to be all these points where marginal revenue equals marginal cost, right? But if we were at a point below, right, if we were at this price down here, p2, well we wouldn't produce, right? We're not covering our average variable cost, so we don't produce. That's why I've got that section right here, this little U-shaped section of the marginal cost curve, kind of shaded out, and then we've got this section right here, this red section over on the left-hand side, that's a quantity of 0, right? So any price up to that minimum AVC, we are going to have a quantity of 0. So that's why we get this kind of almost funky shape. So I took all those cost curves out. I went over here to the right-hand side, and that's kind of what the supply curve looks like. So this would be the firm supply curve in the short run, right? Short run. Alright? So what we see is that it's at any point where the price is greater than the average variable cost, we are going to produce, right, and that's how we have all these little points. Points points points points all the way up the marginal cost curve, and that's how our supply curve gets formed, right? So this black dot right here, that's our minimum AVC. Minimum Average Variable Cost, okay. AVC right there behind me. Alright, cool. Let's go ahead and discuss what the supply curve looks like in the long run. Let's do it in the next video.
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11. Perfect Competition
Individual Supply Curve in the Short Run and Long Run
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