I got 100/100 UMS last year and dont think i've seen any questions that ask for such deep theory It may be good to understand it but it isnt really necessary (for AQA). You've got to look at the MC as a proportion of the supply curve, the addition to total cost from producing an extra unit of output (MC) will rise as the total output increases just as the total a firm is willing and able to supply will rise, and the point at which it stops producing will have a corresponding marginal cost. What can be drawn from this is that the MC curve will end up determining the level of Supply of the firms. loss-making, which doesn't occur in a Perf.Comp market. If a perfectly competitive firm is producing where MCMR - i.e. Therefore if MC=MR, it must follow that P=MC. In a perfectly competitive market, we know that all firms (in the long-run) must produce at the profit-maximising level MC=MR, and given the nature of the market we also know that the Price will be the same as the Average Revenue and the Marginal Revenue.

We know that a basic supply curve is the total amount of output a firm is willing to produce at a given price. Massive bump, I don't understand this can anyone explain this in a different way?įirstly do you understand the Profit maximising rule? But why wouldn't a firm want to produce where the cost of producing its next good is smaller than its variable costs? So that means, in the short run it doesn't cover all of its fixed costs does it?īut then how does that all link up to the marginal cost curve being the supply curve? It's above the SRAVC because it must cover variable costs, I got that. So does that mean, the firm uses its £200,000 of total revenues to pay off the fixed costs whilst taking the £80,000 loss on variable costs? or does it mean the firm pays its £80,000 variable cost and £120,000 of it's fixed cost (meaning it still owes £80,000 on its fixed costs)?īecause it says, in the short run a firm has to cover it's variable costs to continue to operate. Then the firm is making a loss of £80,000. I was reading on perfect competition and it says a firm must cover its variable costs in the short run. I don't understand why the marginal cost curve is the supply curve.

Marginal cost and supply curve