Suppose rocking-chair manufacturing is a perfectly competitive industry in which there are 1,000 identical firms. Each firm's total cost is related to output per day as follows: 0 $500 5 $2,200 1 $1,000 6 $2,700 2 $1,300 7 $3,300 3 $1,500 8 $4,400 4 $1,800
Above the minimum of AVC, the firm's supply curve is its marginal cost curve. It, like the supply curve, is an upward sloping curve. The supply curve is based on the firm's decision to supply more at higher pricing.
The business will offer 4 chairs for $350 each.
The business will offer 5 chairs for $450 each
The business will offer 6 chairs for $550 each
The business will offer 7 chairs for $650 each
As may be seen in the illustration above. It is determined by comparing the provided price to the marginal cost, since we know that when price equals marginal cost, a competitive firm's profit maximizes.
P= MC.
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