Short run supply curve of a firm
Topic: Theory of the Firm, Supply and Perfect Competition · NCERT: Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"
Meaning
The short-run supply curve of a firm shows how much a price-taking firm will produce at each market price while some inputs (plant, machines) are fixed. It is the rising part of the SMC (short-run marginal cost) curve from and above minimum AVC (average variable cost), plus zero output at every price below minimum AVC. Fixed costs are sunk, meaning already paid and lost whether the firm produces or not. So any price that covers variable cost is better than shutting down, even if the firm makes a loss.
Example
Suppose a firm's supply is zero when p < ₹10 and p − 10 when p ≥ ₹10. At ₹8 it produces nothing. At ₹15 it supplies 5 units, where price equals SMC. Loss-making airlines and discoms (power distribution companies) keep running in the short run for the same reason: their revenue still covers operating costs.
Don't confuse with
- Long-run supply curve of a firm: this starts at minimum LRAC. With no fixed costs, the firm will not accept any loss in the long run.
- Break-even point: this is at minimum SAC (short-run average cost), which lies above the start of the short-run supply curve.